[DLTR] Dollar Tree

(this should be read as a companion piece to the Dollar General post from a few weeks ago).

Like Dollar General and Wal-Mart, Dollar Tree traces its origins to variety stores in the Southeast. In 1963 K.R. Perry, a barber and Ben Franklin variety store franchisee, opened the K&K Five and Ten in Ward’s Corner, a suburban shopping center fixed to a well-trafficked corner of Norfolk, North Carolina. Perry hired as the store’s assistant manager his son-in-law, Macon Brock, who enlarged the toy section of store, then specialized in toys exclusively. The rechristened K&K Toys launched during the heyday of toy retailing and by 1978 had expanded to 22 stores, with revenue growing 12%-13% a year¹.

But by the ‘80s, with 136 stores spread across the Southeast and Mid-Atlantic, trouble loomed. Powerful toymakers like Mattel and Playmates prioritized big accounts like Sears and K-Mart who had the scale to promote sales through local advertising and could loss lead on toys to drive profits on other goods, leaving a small player like K&K short on hot merchandise. Atari and then Nintendo likewise prioritized large retailers and left K&K pleading for consoles and games, which were critical for driving store traffic. Meanwhile, big-box specialty retailers like Toys R Us and Circus World were taking tons of share.

Around this time, Brock began looking for outs and found one in a mall in Portsmouth, VA, where a small store, “Everything’s a Dollar”, heaped an array of $1 closeout merchandise in plastic bins that eager shoppers sifted through, not knowing in advance what gems they would unearth. Dollar stores were a natural adjacency for Brock. They were inspired by the five-and-dime concept underpinning the original K&K, and K&K Toys had vendor relationships and distribution infrastructure that it could carry over. And because dollar stores played to the impulsive treasure hunt experience they could be stocked with a random, ever-changing assortment of goods, placing them beyond the grips of powerful toy manufacturers (Brock’s fears about toy retailing proved prescient. K&K’s assets were sold to KB Toys, who went bankrupt in 2009. Toys R Us followed in 2017).

Only $1.00, as Dollar Tree was known when it launched in 1986, inverted a tried-and-true retail model: “The rest of the retail world went out and bought a bunch of stuff to put on the shelves and figured out what to charge for it, based on what they’d spent. We did the opposite. We knew what we’d charge. We just had to find merchandise inexpensive enough to sell for that price”².