Howard Levine, Chairman and CEO, Family Dollar Stores Inc
I think one of the things that I talked about this time last year was that we had lost our way with our core customer. Part of that was driven by our pricing perception, and we needed to do something about that. We took a big jump and took a big hit in terms of making those price investments and getting the traffic back into our stores. To me the real key is to get the traffic back in our stores. You know that traffic has been tough for a number of retailers out there and we were encouraged with what we saw in December. It has been building, but to have positive 2% traffic in December shows that we are on track there.
To your point, yeah, we want to get them in as we always had with food and tobacco and also want to get the sales up in some of those other areas. We think we are starting to build there. We are dealing with a low income customer and our customer is still struggling. Our customer is still facing the highest unemployment rates of any out there. It is much higher than the national rate. I think that’s even misleading, because the number of those folks are just completely dropped out of the labor force. I don’t want to be sounding like I am making excuses, because we own a lot of it here.
We are on a tough playing field in terms of where our customer is, and things like lower gas prices are a benefit, but not the only thing that’s out there that we are working on. We are hanging in there and hoping to see that this thing continues to develop. It hasn’t been. It feels like we have been dealing with these for a long time but these initiatives, the closed stores were towards the end of the third quarter last year and we finished the fourth quarter. The workforce reduction is still fairly new. I think we are trying to execute and trying to lift those mature and along with getting our customer back into our stores.
Michael Lasser, UBS Investment Bank
Do you think the 2% increase in traffic in December was in part because of gas, the lower fuel prices?
Howard Levine, Chairman and CEO, Family Dollar Stores Inc
Again, it would be hard for me to say that. I cannot break that out. I think the thing that I am encouraged about was we have the 2% increase in traffic and we were less promotional as a result of that. I think that is a data point that we are optimistic about and hopefully continues as we work through the year.
Michael Lasser, UBS Investment Bank
My followup question is on the decision to slow down the pilot program. You mentioned that it’s, in part, because of the investment associated with it? Are we just not seeing the results that you have expected? Or are the results there, and in order to scale them over the organization you will have to invest at a measured pace?
Howard Levine, Chairman and CEO, Family Dollar Stores Inc
I think when we convert a distribution center, it is costly and there is a productivity hit as we go through that. In addition to that, as I talked about, there is a significant capital investment that goes along with that. We wanted to roll out the three distribution centers to see how things went and somewhat better than others. We now got it in three distribution centers and before we blow it out to the rest of our supply chain network, we felt we needed to understand some of the impacts.
Our stores love it. Our store teams love it. It makes the unloading of the truck much easier and that is the real positive. It is difficult to measure, but that means in terms of overall improvement in profitability, but we are not giving up on it. I do not think people should read into the fact that we have given up on it. We just want to give it some time. We want to get the business stabilized and then we will attack it in the future.
Michael Lasser, UBS Investment Bank
Okay. Thank you very much.
Howard Levine, Chairman and CEO, Family Dollar Stores Inc
Sure.
