“The Dollar Tree Stores, Inc. is a customer-oriented, value driven variety store, operating at a one dollar price point. The company’s mission is consistent with controlled and profitable growth.” The company was instituted in 1986, in Dalton, GA. Dollar Tree is categorized as a Discount Variety Industry company. Currently, its headquarters is situated in Chesapeake, VA. By 2007, it had 3,219 stores, up from 2,914 the previous year, within the United States. The company’s direct competitors include the 99 Cent only, Family Dollar and Dollar General stores. This is because in this industry, which is presently growing at 2.38%, the company businesses compete on the cost instead of quality. In terms of the total revenue, the market share of Dollar Tree is about 19%.
In this particular industry, the “Five Forces Model” determines that the rivalry between the existing companies as well as the menace of substitute goods is very high. This is due to low consumer loyalty, which is associated with the undifferentiated goods. Today, similar goods are being produced at low elastic switching costs that augment the threat of the substitute goods. In reference to Tully (2015), the threat of new competitors, supplier bargaining power and customer bargaining power are all minute in this industry. This is because of the preexisting interactions that have to with suppliers while the bargaining power of suppliers and customers is low because of product undifferentiating.
Therefore, the company’s success factors include low cost distribution, tight cost control and economies of scale. As a result, to out bid other companies in the discount variety industry, Dollar Tree is trying to open new stores, selling perishable items and by acquiring already existing stores.
The financial analysis of Dollar Tree makes estimates of the firm’s capital structure, profitability and liquidity based on the financial statements, current and forecasted. This enables the firm to compare its growth against other companies. Financial statements in the company are used to forecast short, medium and long term goals. Through the analytical tool, BETA, the analysts then employ the “Capital Asset Pricing Model” (CAPM) to estimate the firm’s equity and the cost of capital using the “Weighted Average Cost of Capital” (WACC).
The company is quite liquid when comparing it to its competitors as well as to the industrial average. Its Quick Asset Ratio and Current Ratio exceed the industry’s average. This means that it is in a position to service its liabilities in comparison to the industry as a whole (Thomas, 2016). On the other hand, it’s Working Capital Turnover and Inventory Turnover is lower in comparison to the current industrial average. However, in terms of the net profit margin, operating profit margin, return on equity and return on assets, the company is way profitable compared to its competitors. The company’s forecast for 2016 was computed using financial analysis average and growth rates using the retained earnings, total equity, total assets and total liability.
According to the overall valuations, the stock price of the company is overvalued. This is because stakeholders base their selling and purchasing power in a firm’s stock price. Therefore, it is the forecaster’s job to ascertain whether the published stock price is undervalued, fair or overvalued using intrinsic valuation methods. They also employ ratios such as the trailing and forecast price-earning, dividend yield, price over EBITDA and price to book and others to evaluate Dollar Tree’s position in comparison to competitors in the industry.
Conversely, the “Intrinsic Valuation Method” employed by Dollar Tree analysts use the residual income perpetuity, abnormal earning approach, residual income method, discounted free-cash-flow model and discounted dividend models to determine Dollar Tree’s stock market value. The free-cash-flow model is applied to determine whether the stock prices are under, fairly or overvalued in the stock market.
The internal factor evaluation (IFE) matrix is the strategic tool that Dollar Tree employs for carrying out its internal audit. The firm uses IFE and EFE in analyzing its finance, IT, marketing, accounts, human resources and operations. Under the IFE, strength factors come first before weakness. This includes the company’s ratings, weight index and total weighted score. The EFE matrix is a strategic management tool that evaluates the current business conditions. It is an exemplary tool for visualizing, examining and prioritizing current threats and opportunities. Dollar Tree employ these method too even though it is similar to the IFE matrix in order to improve the company. This is through social, demographic, environmental cultural, economic, political, business legal and government factors.
According to Andersen (2016), the social, demographic, environmental and cultural factors include age, race, per-capita income, type and population number, gap between the poor and the rich, number of marriages, racial and ethnical minorities, housing, immigration, health care and education. On the other hand, the economic factors include the economic growth, inflation, stock market trends. Additional these include foreign exchange rates, investment and saving levels, import and export barriers, government spending, product life cycles, economies of scale, industry properties, among others. The political, business, government and legal factors involve globalization trends, communication technologies, protection rights, subsidies, taxation, international trade regulations and terrorism amid others.
The BCG Matrix
This model was founded on the “Product Life Cycle Theory” that determines priorities in a product or business portfolio. Goodman (2017) noted that this theory enabled analysts to establish and implement long term goals in Dollar Tree. This was achieved through placing the company through the theories two dimensions, market growth and market share.
Dollar Tree Strengths
- Fundamental operational measure that is better than the competitors in the industry in terms of expenses and returns,
- Strong reputation for quality and service,
- Weakened industrial competition,
- Motivated workforce, and
- Growing population markets
- Pricing against the alternative channels of competition
- Dependency on an individual format
- Difficulty in managing cultural interactions.
- Growth and expansion
- Format innovation
- Frequent shopper data
- High private margins and brand building
- Competitor-store expansion
- Managing high gross margins against competitors
- Managing global tendencies
- Rising above other companies in global expansion
- Managing the company’s expansion without compromising business units
In this industry, there are many companies coming up on top of the already existing ones. Therefore, to maintain an upper hand in the industry, Dollar Tree employs various strategies. Even though it holds the highest profit margin and marketing share in the industry, upholding this is not easy. Moreover, the expansion of the company requires intellectual, educated, emotionally intelligent and patient managers to ensure the complicated system functions well.