"Everybody loves a bargain." These simple words encapsulate the essence of Dollar Tree, a retail empire that has thrived over more than three decades under the strict devotion to the principle of providing affordable goods to the masses. From humble beginnings, Dollar Tree, led by its visionary founder Macon Brock, transformed from five tiny stores of closeout wares tossed in bins, to a half-billion-dollar company in just a decade.
In the early days, Dollar Tree faced skepticism and even laughter from mall developers. They scoffed at the seemingly absurd idea of selling products for a mere dollar. However, like Henry Ford in the automobile industry, Dollar Tree sought to bring scale to the dollar-store concept, making quality products accessible and affordable to the masses.
What truly set Dollar Tree apart was its unwavering commitment to selling everything for a dollar. While other chains with "Dollar" in their names deviated from the original concept, Dollar Tree stuck to its price point, maintaining consistency and building a unique identity. The company's success rested on its ability to find merchandise inexpensive enough to sell at this price, turning the retail world's traditional model on its head. By adhering to this idiosyncratic business model, Dollar Tree created a niche in the market and captured the hearts of bargain-loving consumers.
Central to the businesses success was the belief in seeking ideas from all employees. Macon Brock and his team encouraged independent thought and initiative, regardless of the source. They recognized that innovation and improvement often came from those with an up-close view of day-to-day operations. By fostering a culture of open-mindedness, Dollar Tree continuously embraced change, avoiding stagnation in a rapidly evolving retail landscape.
Dollar Tree vs S&P500 1995-2023 [source: Bloomberg]
The exceptional growth of Dollar Tree relied heavily on its people - the company’s most significant competitive advantage. Dollar Tree focused on maximizing efficiency in moving merchandise, controlling costs, and providing excellent service. While many retailers neglected the bottom end of the market, Dollar Tree defied expectations by offering quality products at an unbeatable price, exceeding customer expectations and building customer loyalty.
Dollar Tree's success story unfolded under the radar, thriving in a niche that had been overlooked by larger chains. The dollar-only concept allowed the company to grow without disrupting competitors' businesses.
This remarkable journey of Dollar Tree is told in the book, ‘One Buck at a Time - An Insider's Account of How Dollar Tree Remade American Retail.’ Within this captivating book, Macon Brock shares his remarkable story, recounting his earlier challenging experiences in the toy retailing industry and leading up to his resounding triumph building a ‘dollar’ store business. Dollar Tree's success serves as a testament to the transformative power of a simple idea executed with dedication, intelligence, and a genuine desire to make a difference. I’ve included my favourite quotes below.
Military
“At the time, I probably didn't appreciate the effect [my military] training had on me, but I certainly do now. It remade me - how I related to people, how I made decisions, how I handled the unexpected, both good and bad. My style as a leader is based on the principles I learned there. Many of today's top American business executives are Basic School graduates. That's no accident. It changes you.
You come out of Quantico with conviction. You know what you have to do, and you know how to get it done. Looking back, it occurs to me that college didn't teach me anything about life, just how to learn. Basic School taught me how to live.”
Culture & Family Feeling
“We wanted a home that fostered communication among different pieces of the operation. We wanted a certain level of informality, an atmosphere that encouraged everyone to mingle. We wanted it to feel like a small, family run business - intimate and friendly - but to work efficiently.”
Obliquity
“We are not simply in the business of making money. We still hew to the idea that to be good operators we first have to be good.”
Crazy Idea
“The mall developers gave us a listen [in the early days], because we'd developed a reputation as good operators with K&K [Toy stores.] Then they laughed in our faces. They thought the idea was crazy. "You're going to sell stuff for a lousy dollar?" they asked. “Forget about it.”
Copy Ideas
“Not surprisingly, once we got started, the Everything's A Dollar folks were unhappy with us. They accused us of ripping off their idea. I can understand why they felt that way, but the charge was off the mark. We ripped off what they wanted to be. Not what they were.”
“I'm no genius. I didn't come up with the dollar-store idea and can't claim any flashes of brilliance that transformed one tiny store into a national chain.”
“We saw an opportunity. We hoped to occupy the same role in the dollar business that Henry Ford had in the car business. He didn't invent the automobile, but he made it available and affordable to the masses. We wanted to bring scale to the concept, which no one else had done.”
Idiosyncratic Business
“The whole business came down to that single fundamental idea (of selling everything for $1.) The rest of the retail world went out and bought a bunch of stuff to put on shelves and figured out what to charge 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.”
“Of the three big American chains with Dollar in their names, we're the only one that actually sticks to that price.”
“What we chose to sell in the stores and our ability to stick with our price point regardless of what was happening in the world, that's what made us truly remarkable and set us apart from any other retailer in the country.”
Seek Ideas from All Employees
“We try to encourage ideas from our associates on just about any topic. When we improve some aspect of our stores, the idea almost always comes from someone with an up-close view of our day to day habits. We try to promote independent thought and initiative in our people.”
“We were always open to new ideas, new and better ways of doing things, and it didn’t matter whether they were mine or Doug’s or a truckdriver’s. If they were good, they were good.”
Change
“In retail, if you’re not changing, you’re dying. We have to strive to stay fresh, to keep surprising our customers. We can’t make that happen by embracing the status quo, even for a minute.”
Evolution
“Your local Dollar Tree didn’t materialise out of nowhere. It’s the product of a long evolution that began among the popcorn, toys, and fish tanks of that Wards Corner five-and-ten. It embodies what we learned, often the hard way, during our long apprenticeship in the toy business. It testifies to decades of sweat, moxie, and discipline from a dedicated group of people with a shared sense of mission, people who truly believed that if we did the right thing for the right reason, we’d succeed – and who proved that belief true.”
Return on Incremental Capital
“The first five stores set a pattern that has held for Dollar Tree ever since. Every store paid for itself within its first year of operation… enough to cover all the costs of building out the space, keeping it full & paying everyone involved in opening & running the place.”
“Most of our stores did far better than simply pay for themselves in their first year. Some earned enough to damn near pay for a second store.”
Competitive Advantages
“The biggest key to our rapid expansion, far bigger than any other factor, was our people.”
“Our ability to maintain the dollar price point depended to a large degree on maximising the efficiency with which we moved merchandise from the factory to the shelf - depended on controlling costs, combining tasks, and boosting speed and service.”
“Retail is not complicated. Those who do it well do it through people.”
“Before we came along, the dollar had dwindled in significance. A buck no longer bought many candy bars, let alone a cup of coffee. Fact was, no one in American retail gave a damn about the bottom end of the market, and no American shopper expected to find anything of quality for a single dollar.”
Exceed Customer Expectations
“Such are the deals that Dollar Tree provides its customers every day. They defy credulity. They seem to defy common sense. Yet the company's stores maintain one of the highest profit margins in the business.”
“That's the key to the company's success. We can absolutely floor our customers with the prices we offer and still generate a tremendous income. We don’t have to make a killing on each item, just a healthy margin. Which is another way of saying we didn't get here by being greedy. We got here by being smart.”
“We aimed to surprise and delight our customers, to do right by them. To make their lives just a little better. We could have set out simply to make a lot of money, and perhaps we would I have. But had that been our sole mission, I don't believe we'd feel nearly as good about the experience as we do.”
Under the Radar
“The dollar-only concept enabled us to grow successfully among much larger chains without getting into a serious spat. We didn't hurt anybody's business. We just found a niche nobody had exploited on a large scale… Considering how well it's worked out, it's a little surprising that no new national players have come along to challenge us as dollar-only merchants.”
Keep it Simple
“We'd reached a thousand stores by keeping everything as simple as possible.”
Tone from the Top
“Who, after all, knows the business better? In the course of the company’s history, the founder has done everything from buying paper clips and mopping the floors to devising long-term strategy. And perhaps more importantly, he embodies the vision everyone in the work force has shared, the goals towards which everyone has laboured.”
“No one’s personality is as visible, as influential, as that of the man or woman at the top. That person is ideally symbolic and a real leader in the company’s culture; he’s the cross between a car’s hood ornament and its driver. He gives the business a face. He’s shorthand for the brand. And he has a tremendous role in charting its course.”
“Doug, Ray, and I had always managed for the corporation. We’d never cheated, never charged things to the company for our personal benefit.. We treated ourselves as employees of the company. The same went for the high officers who’d worked for us over the years. None of us took goods without paying for them - not so much as a polyresin Santa figurine. That did not go unnoticed. The officers lower in the company’s hierarchy had adopted that style as their own, and their charges had followed them. The whole culture was straight-up.”
“We made one decision I thought was particularly important: most of the building’s window’s would be shared by all. Only top management had private offices, and only five of us had offices with windows. In fact, the building had only one corner office.”
Ordinary People doing Extraordinary Things
“Ordinary people doing extraordinary things. I believe you should hire people who are smart and driven to succeed, then empower those people. Trust them to achieve. Trust that they’re honest. They’re usually worth it, and if they’re not, you’ll figure it out soon enough.”
“Towards the end of my career, I was fond of saying we were ‘ordinary people doing extraordinary things.’”
Collective Effort and Long Term
“Every member was essential to what we created, and everyone lived and worked by principles that we came to value together. Do your best. Do the right thing. When in doubt, choose the solution that works best for the long term.”
“What made the difference, and made the company, was collective effort. We all - from buyers to warehouse workers, store managers to computer whizzes, accountants to payroll clerks - were the creators of Dollar Tree. We shared a sense of mission.”
Value, Respect & Empower Employees
“To a large extent, those people in the field are the real story behind Dollar Tree's success. We try to treat them respectfully & honestly. We try to pay them decently and to provide them with good benefits so they'll choose to grow with the company. We try to catch people doing something right, and praise it.”
“Tom really paid attention to the needs of his people. Until we grew to hundreds of stores, he knew the name of everyone of our store managers and something about their backgrounds - where they came from, what they’d done.”
“We were building this company, Doug and I, with no firmer idea of how to succeed than most of the people we hired to help us. They’d ask me questions, and I’d tell them, ‘Don’t ask me how to do it. I’ve never done it either. Just go do it, and I’ll have you're back. We’ll figure it out.”
“We’ve found that when we give [our associates] the room to do what they’re capable of doing, they almost always pleasantly surprise us. You can’t make people do anything; they have to want to do it. So if you communicate with them openly, and share information, and encourage them, coach them, and train them, they’ll perform.”
“We train our managers to ‘catch people doing something right’ - to praise them, encourage them, show them how important they are to the company's success. Because without question, they're the most important assets we have.”
“We've always tried to give our people a way to share in our success.”
“We could have looked after our own people poorly, could have paid our sales associates and warehouse teams the minimum, without benefits, and not bothered with performance bonuses and investment options. But we didn't do that.”
Get out the Way
“Among the important lessons I learned [in the marines] was that effective leaders knew when to get out of the way. I trusted my sargeants to do their jobs, and they didn’t let me down. In the marines, as in the business world, micro-management is a waste of time and talent.”
Appearances
“The first thing that should surprise and delight customers on entering a Dollar Tree is the clean, bright, and well organised look of the store.”
Training
“To keep up with our need for well-trained managers, we took a page from McDonald’s and ran almost three hundred trainees through an education program we called Dollar Tree University.”
Start at the Bottom
“We were a company of diehard loyalists, many of whom had started as teenagers stocking shelves or loading trucks and now ran the show.”
Do the Right Thing - Golden Rule
“Our success has always seemed to me the result of trying to do the right thing for the right reason. Those aren’t just words. I reckon we could have bought cheaper, less worthy stuff on higher margin on our buying trips and offered it for a dollar, and our customers would have been none the wiser. But we didn’t do that. We strove to treat our customers as we’d want to be treated – and that meant getting the best quality we could afford.”
Acquisitions
“As with most of the acquisitions we’d make in the years to come, we got more than just real estate and market share when we bought a company - we got smart people and their ideas, if we were willing to listen.”
“… you can put two companies of equal size to the same task, and it won’t take long to see that their success or failure turns on elements that are few in number, and entirely human: their commitment to the mission, their overall morale, their collective determination…”
Sensible Growth
“Before we signed a lease, we made sure the numbers worked for the long term. We didn't open stores willy-nilly; we controlled our growth. One rock-steady rule was that we wouldn't outrun our infrastructure. The other guys played a looser, faster game…. In sum, what the other guys lacked was discipline, and it proved their undoing.”
Competition
“Competition, fair competition, is good for any company. It invigorates. It encourages good business practices.”
Dollar Concept
“Of all the questions I've been asked about Dollar Tree over the years, the most persistent by far is, ‘How long do you think you'll be able to keep the price point at a dollar?’ Even now, with the company's thirtieth anniversary behind us, people can't believe we can stick with it indefinitely.”
“Personally, I viewed the dollar-only concept as sacred. It was everything… Ditch the dollar, I believed, and we'd surrender our niche. We'd also damage our negotiating position with the very vendors who were bitching about our price point, because as things stood they knew what price they had to meet before we would or could buy from them. They knew we had no wiggle room… Most importantly, we'd lose the element of surprise we had over our customers, who would not be quite as amazed at the goods we sold if they were priced even twenty-nine cents higher.
On top of all that, I was confident that the merchandise we'd sell at $1.29, or two bucks, or even three, would not be appreciably better than what we were already offering for one. I devised an experiment to test my thinking. I sent Alan Wood to New York with instructions to buy merchandise we could sell for one dollar, for two dollars, for three and five, and to bring back a sampling of good at each level. He returned, and we spread all the booty on a table and asked people in the office to pick out which items should go in each pile. They couldn't do it. Everyone was shocked.
It was impossible to tell the difference between an item we could sell for a buck and others we might charge three or even five times as much for. So how could a customer tell when she got a good buy on something? She couldn't - and she couldn't tell when she paid too much either.
That told us that the magic of our business model was having everything priced at a dollar, so a customer had no doubt, none at all, that she was getting a bargain. At a dollar for everything, the thought never occurred to her that an item might be overpriced. How could it be?
Another piece of magic that the dollar price point brought was that when a customer walked into our store, she could shut off her brain. She didn't have to think, didn't have to calculate how much she was spending. All she had to do was count ‘One, two, three, four, five, six. I have six items, and I have six dollars. I can buy this.’ Whether or not she was on a limited budget, it made the transaction as easy as spending money can be.
That little experiment made up our minds that we had to stick with a dollar. If someday we were forced by circumstance to shift it, we'd do so, we decided.”
Quality
“We always tried to buy the highest-quality stuff we could afford. If we were able to beat our margin target on one item, we'd sometimes use the extra cushion that gave us in the overall margin to buy another item of better quality than we'd initially considered. Water guns, for instance. We had a two-pack, which was an okay seller. If we wanted to really wow the customer, we'd make it a three-pack. It might go from a forty-cent first cost to fifty cents, but it still fit within our overall margin, so we'd do it. If I beat my target (while sourcing goods), I could come home and be the hero. But more often than not, we decided not to try to beat the budget - we'd meet it instead, and shoot for better quality.”
Retailing Tips
"One thing did not change as our stores grew up: we continued to emphasise the element of surprise, continued to bring in merchandise of such quality that our customers could not believe we were selling it for a dollar. It was exciting for the people working in the stores, too. They never knew what was coming off that truck. Even with better-defined categories, we thus preserved Dollar Tree's treasure-hunt appeal. From week to week, people never knew what surprises might be waiting."
“From early on, we had three tests for merchandise. First, and most obviously, it had to sell for a dollar, so it had to have a "first cost" of considerably less--meaning sixty-five cents or so, tops, and as a rule considerably less than that, before tax, shipping, and such. Second, it had to have a perceived value of higher than a dollar, so anyone encountering it in our stores would be surprised it was priced so low. They'd reasonably expect to pay more. The third test was that it had to be of some quality, some value. It had to be something people would want. It couldn't be junk. Otherwise, we observed few rules. Random, serendipitous, whatever, we'd buy it, whatever it was, in any quantities we could.”
“What should you put on the shelf? That's the key. If you don't get that right, it doesn't matter what else you're doing. The merchant is the most important person in a retail company. You cannot survive without a really great merchant. What he buys is key."
“We went shopping around the world for merchandise without markups. The world had never seen anything quite like it. Buyers for Walmart and Kmart weren't getting in a car and driving for hours on dirt roads to find these rural factories. They weren't as hungry as we were, or as hell-bent on going to the source.
We were the Indiana Joneses of retail. We went to Italy to buy plastics, mostly kitchen and household items with modern designs and interesting colors. We went to India and bought hand-carved soapboxes and figurines made of soft stone. We found candy and cookies in Argentina. We bought handicrafts from Indonesia, which didn't have any manufacturing capability but had labor aplenty and could turn out merchandise in bulk. We went to Thailand in search of rawhide dog chews. Before then, you couldn't buy a dog chew in America for less than two or three dollars.”
Location
“Dollar Tree could not have prospered without good locations for our stores. Many a good concept has failed because it opened for business in the wrong place. Real estate has always been a vital component of our success.”
“We pulled Dollar Trees out of enclosed malls as our leases expired and moved into traditional strip malls and power centers. The trick was to get a storefront as close as possible to one of the anchors, preferably a variety anchor or a supermarket--a place where shoppers would be going as a matter of course.
That became our strategy: just as a remora attaches itself to a shark to take advantage of the bigger fish's supply of food, we shouldered up to big-box shopping magnets. And the strategy worked. Did it ever! The lower overhead in the strip centers enabled us to experiment with larger stores.”
Wall Street
“Wall Street didn't give a damn then about long-term performance, and it doesn't now. It doesn't give a damn about the past or the future either. It focuses only on what's shiny and right under its nose. The market has a notoriously short attention span.”
Summary
Macon Brock's remarkable success with Dollar Tree highlights key factors that investors can learn from and seek in potential investment opportunities. As Charlie Munger wisely stated, "Take a simple idea and take it seriously," Dollar Tree's relentless dedication to providing affordable goods exemplifies the power of simplicity.
Their idiosyncratic business model, sticking to the dollar price point while others focused on markups and different price points, differentiated them from competitors. Dollar Tree's commitment to seeking ideas from all employees fostered innovation and adaptability. Furthermore, their ability to exceed customer expectations while maintaining healthy profit margins proved a highly sustainable long term business model.
In a world where everybody loves a bargain, Dollar Tree's story serves as a reminder to investors to seek companies with a clear and focused business model, a commitment to innovation, and a deep understanding of customer needs. When combined with an empowered, valued and respected workforce, the long term results can be astounding.
Source:
“One Buck At A Time: An Insider's Account of How Dollar Tree Remade American Retail,” Macon Brock. 2018.
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