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Dollar Tree to Close 390 Family Dollar Stores and Rebrand 200 More

We thought this was an important article since these closings will affect many shopping centers. As Dollar Tree closes some of their Family Dollar Stores, they must also rethink their own pricing strategy. Will you be paying more than a dollar at your next visit? Will they be able to overcome over 2 Billion in net losses?

Photo Courtesy of Thinknum.

Dollar Tree said it would shut down 390 Family Dollar stores and re-brand hundreds more.

The move is a shallow admission that the $9 billion purchase of Family Dollar is falling well short of expectations.

It comes only two months after activist shareholder Starboard Value took a 1.9 percent stake in Dollar Tree with the intent of pushing it to shake up the status quo.

Dollar Tree booked a $2.73 billion charge in the fourth quarter, a huge swipe at the value of Family Dollar, which has been a drag on earnings since its 2015 purchase.

Comparable-store sales at Dollar Tree climbed 3.2 percent while Family Dollar’s slid 1.4 percent.

Dollar Tree and Family Dollar stores are both discount retailers in different genres. Dollar Tree stores are mostly open in urban areas where it sells items that cost only $1 or less.

Family Dollar stores have a wider price range and larger number of items and are mostly found in rural areas. At the end of the quarter, the company operated 15,237 stores in total across 48 states and five Canadian provinces.

Dollar Tree saw gross profit and margins tumble in the quarter, pulled down by lower net sales at both stores, higher markdowns at Family Dollar and a spike in one-time charges tied to administrative expenses.

The company reported a $2.31 billion net loss in the quarter compared to a $1.04 billion profit a year ago that was pumped up by a one-time tax benefit.

To crawl out of that hole, Dollar Tree said it closed 84 Family Dollar stores last year and said that it would shutter as many as 390 more under-performing stores this year.

The company noted that it is working to achieve “material rent concessions from landlords,” and the total number of stores slated to go dark could fluctuate based on the results of those talks.

At the same time, the company will renovate at least 1,000 Family Dollar stores, adding $1 Dollar Tree merchandise sections, and re-brand another 200 to Dollar Tree banners.

It also will open 200 new Family Dollar stores while adding 350 Dollar Tree stores to the portfolio.

Starboard has prodded Dollar Tree to rethink its dollar-only strategy by creating a multi-price strategy and to consider “strategic alternatives” for Family Dollar.

Starboard said “there is little benefit in keeping the Family Dollar and Dollar Tree businesses together.”

As for the dollar-only strategy, Starboard called it a “fallacy,” given sales taxes, and questioned the value proposition to customers.

Starboard’s letter pointed out that competitors such as Dollar General, FiveBelow and 99 Cents Only have introduced multi-priced items.

Dollar Tree appears to be acquiescing – at least a little. Remarking that the $1 fixed-price point has been a “critical element to Dollar Tree’s success,” the company said it is testing multi-price items.

However, the company noted that multi-pricing has “been done on prior occasions,” without commenting on the results and adding that Family Dollar’s expertise will help guide it going forward.

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