Dollar stores are closing down across the United States, and they are responsible for their own demise

It’s a challenging period for two major U.S. dollar store chains. Recently, Family Dollar announced the closure of nearly 1,000 stores, while 99 Cents Only declared it will be going out of business.

Both companies attribute their difficulties to inflation and shoplifting. However, analysts suggest that years of strategic errors and insufficient investment have also played significant roles in their decline. After being acquired by other companies, both Family Dollar and 99 Cents Only struggled under new ownership.

Family Dollar, with approximately 8,000 stores primarily in urban areas, has faced challenges since Dollar Tree purchased it in 2015 for $8.5 billion. Dollar Tree had hoped that acquiring Family Dollar would enhance its competitive position against larger rivals, but the deal did not yield the expected benefits. According to Neil Saunders, managing director of GlobalData, the acquisition has been a constant source of trouble for Dollar Tree.

On the other hand, 99 Cents Only, which operates mainly in the West Coast and Texas, has also suffered from its own missteps, including operating stores that were too large and inefficient. According to David D’Arezzo, a former executive at Dollar General, 99 Cents Only never had a sustainable business model.

Overall, both chains have faced numerous challenges, and their struggles highlight the importance of sound strategy and investment in the retail industry.

Family Dollar plans to shutter 600 stores this year and an additional 370 locations over the next few years as their leases expire, according to Dollar Tree CEO Rick Dreiling in a recent call with analysts. These closures are due to the unprofitability of these stores.

Dreiling attributed Family Dollar’s challenges to the broader economic environment, referring to it as a victim of the macro environment. However, analysts point out that Family Dollar’s issues extend back over a decade, with problems such as cluttered stores, high prices, and excessive expansion plaguing the company.

In 2014, under pressure from activist investors like Carl Icahn and Nelson Peltz, Family Dollar agreed to sell itself. The following year, Dollar Tree acquired the company, despite being smaller at the time. The acquisition was aimed at expanding Dollar Tree’s reach to lower-income customers in urban and rural areas, complementing Dollar Tree’s focus on middle-income suburban shoppers.

However, analysts suggest that Dollar Tree struggled to integrate Family Dollar due to their differing strategies and store conditions. Many Family Dollar locations were in poor condition, and initial efforts to boost sales, such as introducing beer sales, did not yield the expected results. Additionally, some Family Dollar stores were too close to each other, leading to cannibalization of sales.

Despite challenges, Dollar Tree remains optimistic about Family Dollar’s future. The chain has a new CEO and management team, and is implementing strategies such as lowering prices, introducing more private-label brands, and improving the supply chain. According to a company spokesperson, Family Dollar is still in the early stages of its transformation journey, with potential for significant growth ahead.

99 Cents Only stated that it filed for bankruptcy due to enduring challenges in the retail sector, including the impact of the pandemic, inflation, and increased shoplifting. However, the chain has faced profitability issues since 2015, indicating deeper-rooted challenges.

With over 370 stores across California, Nevada, Arizona, and Texas, 99 Cents Only was taken private in 2011 through a $1.6 billion leveraged buyout, accumulating more debt in subsequent years to remain operational. Despite initially strong performance, including the second-highest profit margin and highest sales per square foot among competitors at the time of the buyout, the chain began to struggle.

Efforts to boost sales, such as the “Go Taller” strategy to increase shelf height, led to increased spoilage and damaged products. 99 Cents Only faced tough competition from larger rivals like Walmart, Costco, and Dollar General, resulting in financial losses annually from 2016 onwards.

The company’s significant debt burden prevented investments in store improvements, supply chain enhancements, and digital strategies, leaving it unable to keep up with competitors’ expansion. Additionally, its stores, averaging 20,000 square feet, were larger and more costly to operate compared to other dollar store chains, emphasizing the financial strain.

The combination of limited financial flexibility, operational challenges, and an increasingly competitive market ultimately led to 99 Cents Only’s decision to file for bankruptcy.

Leave comment

Your email address will not be published. Required fields are marked with *.