Dollar Tree Strategic Overview

Address:500 Volvo ParkwayChesapeake, VA 23320757-321-500www.dollartree.comSales: $2.33 billionStores: 2,263OperationsAt December 31, 2002, we operated 2,263 single-price point stores in 40 states under the names of Dollar Tree, Dollar Express, Dollar Bills, Only One Dollar and Only $One.Since 1986, we have evolved from opening primarily mall-based stores ranging between 1,500 and 2,500 selling square feet to opening primarily strip shopping center based stores averaging 8,000 to 10,000 selling square feet. In the past five years, we gradually increased the size of stores that we opened each year as we improved our merchandise offerings and service to our customers. At December 31, 2002, 468 of our stores were 8,000 selling square feet or larger.We expect to increase our selling square footage in the future by opening new stores in underserved markets and strategically increasing our presence in our existing markets via new store openings and store expansions (expansions include store relocations). In fiscal 2003 and beyond, we plan to predominately open stores that are approximately 8,000 to 10,000 selling square feet and we believe this size range allows us to achieve our objectives in the markets in which we plan to expand. In addition to new store openings, we plan to continue our store expansion program to increase our net sales per store and take advantage of market opportunities. We target stores for expansion based on the current sales per square foot and changes in market opportunities. Stores targeted for expansion are generally less than 3,500 selling square feet in size. Store expansions generally increase the existing store size by approximately 4,500 to 6,500 selling square feet.Our stores receive approximately 97% of their inventory from our seven distribution centers via contract carriers. The remaining store inventory, primarily perishable consumable items and other vendor-maintained display items, are delivered directly to our stores from vendors.In fiscal 2003, we plan to increase our selling square footage approximately 22%, or approximately 2.9 million square feet, 0.9 million of which will come from expansions. We expect the average size of new stores opened in fiscal 2003 to be approximately 9,000 selling square feet per store. While our newer, larger stores have lower sales per square foot than older, smaller stores, they generate higher sales and operating income per store and create an improved shopping environment that invites customers to shop longer and buy more.We opened 318 new stores and closed 30 stores during 2002, compared to 276 new stores opened and 30 stores closed in 2001. We centrally manage our store and distribution operations from our corporate headquarters in Chesapeake, Virginia.Merchandising We strive to exceed our customers' expectations of the variety and quality of products that they can purchase for $1.00 by offering items that we believe typically sell for higher prices elsewhere.We buy approximately 60% of our merchandise domestically and directly import the remaining 40%.We maintain a balanced selection of products within traditional variety store categories. We offer a wide selection of everyday basic product and we supplement these basic, everyday items with seasonal and closeout merchandise. We attempt to keep certain basic consumable merchandise in our stores continuously to establish our stores as a destination. Closeout merchandise is purchased opportunistically and represents less than 10% of our purchases. National, regional and private-label name brands have become a bigger part of our merchandise mix, which consists of:consumable merchandise, which includes candy and food, health and beauty care, and housewares such as paper, plastics and household chemicals;variety merchandise, which includes toys, durable housewares, gifts, hardware, and other items; andseasonal goods such as Easter, Halloween and Christmas merchandise.In April 2002, we implemented our new inventory management system. We expect that the new system will enable us to improve the efficiency of our supply chain, improve merchandise flow and control distribution and store operation costs. At December 31, 2002, we operated point-of-sale systems in 851 stores and we plan to install POS in all new and expanded stores and convert more of our existing stores to POS in fiscal 2003. We expect to have POS installed in approximately 1,800 stores by the end of fiscal 2003. AdvertisingThe company expenses advertising costs as they are incurred. Advertising costs approximated $789 in the month ended February 1, 2003. The company did not incur significant advertising costs in the years ended December 31, 2002, 2001 and 2000.The FASB's EITF Issue 02-16, "Accounting By A Customer (Including A Reseller) For Cash Consideration Received From A Vendor," addresses the accounting treatment for vendor allowances. We have only insignificant allowance agreements with our vendors; therefore, we do not expect the adoption of this pronouncement to have a material effect on operations.

Dollar Tree Strategic Overview

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