New Supply Chain system For Dollar Tree's New Consumers

Dollar Tree Stores, a chain of variety stores selling merchandise for a dollar, made five acquisitions in four years, adding locations in lower-income neighborhoods and doubling the number of its stores from 888 to 1,729.

The company acquired Chicago -based Dollar Bill chain in 1996, Sacramento, Calif.-based 98¢ Clearance Centers in 1998, New York-based dollar store operator ONLY $ONE in 1999. and Philadelphia-based Dollar Express and Spain's Cards & Gifts stores were acquired in May 2000.

Realizing its stores needed to be better stocked to accommodate its new customer base, the Chesapeake, Va.-based chain invested in new supply chain technology.

The company installed automated tools to improve sales forecasts and an inventory tracking system to replace the homegrown technology and spreadsheets that buyers were using to monitor inventory levels.

Dollar Tree is focusing on raising the in-stock levels of items like toilet paper, paper towels, and dish and laundry detergent—called continuity products.

These continuity items now account for up to 20% of the chain's sales, which were $1.6 billion last year.

"Prior to our acquisitions, our stores were 5,000-square-foot boxes located in suburban America. They served middle class housewives and mothers who came to our stores to see what new and exciting products we featured. If we were out of toilet paper, it was not a problem," Steve Miller, vice president allocation and replenishment, Dollar Tree Stores, said at the IBM link_2000 supply chain conference held in March.

"Our newly acquired stores, which are closer to 10,000 square feet, are in lower-income areas where people shop us before heading to the supermarket. They are relying on us for household staples. If toilet paper, for example, is out of stock, we lose sales."

Dollar Tree had to find a better way to monitor the flow of continuity inventory—approximately 400 SKUs (stockkeeping units)—from the distribution centers to the stores.

Relying on homegrown systems and spreadsheets for forecasting was no longer an option to support the growth and maintain in-stock levels at the chain's stores and six distribution centers.

"It was a horrible system that only kept our warehouses at approximately 85% in-stock level," Miller told RETAILTECH in a separate interview.

In March 2000, Dollar Tree transitioned onto an automated forecasting system from E3, Marietta, Ga., that was linked to its legacy system.

Dollar Tree expects the tool, which analyzes customer demographics, product seasonality and profitability of past sales, to create forecasts that will lower depot inventory levels and create more product turns in stores.

"The forecasts will help buyers procure the right levels of stock needed in stores more often, and increase our service levels," Miller said.