"The urban initiative is our greatest opportunity butit also hasthe greatest challenges," said FamilyDollar chairman and CFO JimKelley during apresentation here at Bear Stearns investorconference.Realizing that urban markets are under-penetratedbydollar stores and have the potential of being highly profitable,Family Dollar embarked upon the Urban Initiative earlier in late2004, after throwing around the idea for the past seven or eightyears. <pKelley said that Family Dollar's urban storesofferthe highest return within the company'sportfolio,typically doing a larger volume than non-urbanstores.However, they require an efficient operating model tobeprofitable. In particular, these stores need morerobust staffing tohandle the volume. For example,urban stores require improvedrecovery – or clean up –to maintain an attractive level of storepresentation. Additionally, urban stores need faster inventoryreplenishment, which means more stockers in the back room, Kelleynoted.

In order to meet these staffing needs, Family Dollaris investingin technology for its urban units,Kelley said. Over the past 12months, the discountchain has increased its core operating expensestoimplement new human resources technology that makes iteasier toscreen employment applications. The program,which was three yearsin the making, has generated alot of applications for thechain.

While urban stores possess "legitimate" barriers,Kelley says,they're worth it. "The retailer that'sable to develop the processesneeded to operatesuccessfully in that environment will haveasignificant competitive advantage," he stressed. Hecontinued: "Ifwe're successful (in our urbaninitiative) – and we believe we willbe, it augmentsour expansion capabilities."