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Years of mismanagement and poor store conditions have hurt the Family Dollar brand.
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Family Dollar, the struggling discount chain that serves low-income customers primarily in cities, said Wednesday it will close nearly 1,000 stores.
Years of mismanagement and poor store conditions have hurt the Family Dollar brand. Family Dollar, owned by Dollar Tree, was recently fined more than $40 million for a rat infestation in a warehouse that forced hundreds of stores to temporarily close.
Inflation, which has been high for decades, has hit buyers hard, and a general decline in consumption has impacted Family Dollar customers and the chain’s profits, exacerbating its battle with discount competitors such as Dollar General, Walmart and others.
Additionally, reduced Supplemental Nutrition Assistance Program, or SNAP, benefits have left families struggling. with up to $250 less per month. Discounters and consumer goods companies say they have felt the impact of that loss.
“Persistent inflation and reduced government benefits continue to put pressure on low-income consumers who make up a sizable portion of Family Dollar’s customer base,” CEO Rick Dreiling said on a call with analysts Wednesday.
Family Dollar will close 600 locations this year and 370 stores over the next few years as store leases expire. Family Dollar has about 8,000 stores in the United States. Dollar Tree also said it will close 30 stores when their leases expire.
The closures will improve the company’s profitability. But they are likely to leave a void for Americans who already have limited purchasing options. Family Dollar stores are typically in areas with few supermarkets, big-box stores, and other retail options.
Dollar Tree shares sank more than 13% to their lowest level this year in early trading Wednesday.
06:07 – Source: CNN Business
Dollar General’s business is booming. It is also vulnerable to crime, police say.
Dangerous and understaffed stores
Discount retail has been one of the industry’s bright spots, dating back to the Great Recession, when the economic crisis and high unemployment forced Americans to hunker down, forcing retailers to cut prices to survive.
Years of bargain hunting have conditioned shoppers to look for discounts rather than pay full price, a mentality that persists to this day.
So while thousands of department stores, mall specialty stores and other retailers have closed, discounters ranging from Walmart to Dollar General to TJ Maxx have grown. These companies have focused on attracting the shrinking middle class and lower-wage shoppers looking for low prices. While many shoppers have been squeezed by the highest level of inflation in decades, discount chains have improved their position.
But Family Dollar has been left out.
Dollar Tree, which focuses more on middle-income shoppers in the suburbs, bought Family Dollar in 2015 for $8.5 billion.
The combined company hoped that by joining forces it could grow its customer base, reduce costs and fend off larger retailers like Dollar General, which is primarily located in rural areas.
But Dollar Tree has struggled to integrate Family Dollar and has closed hundreds of stores in recent years.
Family Dollar stores were in worse condition than Dollar Tree expected when it acquired the business, analysts say. Although Family Dollar has renovated thousands of stores in recent years, many of them are still poorly maintained. Stores are often understaffed and checkouts block aisles.
Family Dollar, Dollar Tree, Dollar General and other discount stores have long had theft problems, operating stores with only a handful of employees who have sometimes fallen victim to violent robberies and other crimes.
Dollar Tree employees have complained about unsafe working conditions, and last year OSHA criticized the company for a “continued disregard for human safety” that “suggests the company believes profits matter more than people.”
Family Dollar received a record fine this year for violating product safety standards after selling items stored in a rat-infested warehouse in West Memphis filled with live, dead and decomposing rodents.
The $41.6 million fine was “the largest monetary criminal penalty ever imposed in a food safety case,” the Justice Department said.
Last year, Dollar Tree announced it would review its entire portfolio of Family Dollar stores to identify underperforming locations.
While Family Dollar struggled, its rival Dollar General prospered.
Dollar General has opened about 1,000 stores a year, making it the fastest-growing retailer in the United States. The company has around 18,000 stores.
Companies are struggling to attract many of the same low-income shoppers. Despite the name, these stores primarily sell food and everyday items for between $1 and $10.
But Family Dollar has lost ground to Dollar General, particularly due to pricing: Family Dollar’s prices can be 10% to 15% higher than those at Dollar General and other discount competitors. Dollar General, which is more than twice the size of Family Dollar, is able to offer lower prices because of its scale.
Shoppers have turned to Dollar General, Walmart, Target and other low-price chains to stretch their budgets.