November 3, 2009 / 5:24 PM / 9 years ago

Family Dollar sees growth in new stores, new shoppers

* Focused on getting middle-income shoppers to spend more

* Will renovate older stores

* Shares down 2 pct

By Nicole Maestri

NEW YORK, Nov 3 (Reuters) - Family Dollar Stores Inc FDO.N will expand its business by opening new stores, renovating older locations and selling more to the middle- income consumers who are looking for bargains.

The retailer, which sells most of its merchandise for $10 or less, outlined the plans at its analyst meeting on Tuesday, which was broadcast over the Internet.

Family Dollar’s core lower-income shoppers have household incomes below $40,000, but the retailer has said it is attracting more shoppers with household incomes of up to $70,000 as unemployment rises and credit remains tight.

“She’s coming to our store, but she’s not shopping the whole store,” said James Kelly, president and chief operating officer, of Family Dollar’s higher-income shoppers.

To gain customers’ trust of its name-brand food selection, it is introducing a new advertising campaign. Ads will show products like Kraft Macaroni & Cheese with the slogan: “Exactly the same as the grocery store. We just price them lower.”

To sell more to shoppers during each visit, Family Dollar is grouping similar products, such as baby items, in one location. It is also trying to make its stores easier to navigate by improving signs and removing clutter.

Kelly said a few years ago, Family Dollar slowed its new store openings to focus on boosting sales in existing locations. He said the retailer was now “in a better position to focus on new store growth.”

It will also renovate older stores to make them as productive and easy to shop as the newer locations.

CEO Howard Levine said some investors believe Family Dollar performs best in a recession, when shoppers need to stretch tight household budgets. But he said: “I would much rather operate in a robust economy.”

As the economy improves, Levine said shoppers begin buying more discretionary merchandise, like clothes or holiday decorations, which have higher profit margins than consumable items, like food, that are currently driving the bulk of its sales.

That is good news for Family Dollar because the basket of items that its shoppers buy “becomes more balanced and more profitable,” he said.

Family Dollar shares were down 2 percent at $28.14 in late morning trading. (Reporting by Nicole Maestri, editing by Maureen Bavdek)

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