Dollar Tree to Close 1,000 Family Dollar Stores
Persistent Inflation... Pressure on Low-Income Families
The $1 store, often called the "American version of Daiso," is closing many of its locations.
Dollar Tree, a low-cost discount chain in the U.S., announced on the 13th (local time) that it will close about 1,000 stores across North America, mainly its subsidiary Family Dollar. The company closed 600 Family Dollar stores in the first half of this year and plans to close an additional 370 Family Dollar stores and 30 Dollar Tree stores as their leases expire.
This decision to close stores is due to declining sales and economic headwinds. Rick Dreiling, CEO of Dollar Tree, said, "Family Dollar is a victim of the macro environment," adding, "Persistent inflation and reduced government stimulus are putting pressure on low-income consumers, who make up a significant portion of Family Dollar's customer base."
Additionally, ongoing issues with inflation, inventory, and theft, along with intensified price competition from large discount retailers like Walmart, have negatively impacted the business. Recently, Family Dollar was fined heavily for selling products stored in warehouses infested with rats, violating safety standards.
Dollar Tree acquired its competitor Family Dollar in 2015 for $8.5 billion. The strategy was to achieve economies of scale to compete with rivals like Dollar General, but the integration process reportedly brought more challenges. The Wall Street Journal (WSJ) noted, "Despite remodeling Family Dollar stores for years and closing 600 stores in 2019, the company continues to face difficulties." Currently, the Family Dollar and Dollar Tree chains operate about 16,700 stores in North America, with each brand accounting for roughly half.
CEO Dreiling also revealed plans to focus more on Dollar Tree stores, which primarily serve suburban middle-class customers, rather than Family Dollar. Although both Family Dollar and Dollar Tree are discount chains selling low-priced household goods ranging from $1 to $10, Dollar Tree targets a customer base with a higher average income in suburban middle-class areas.
On the same day, Dollar Tree announced a net loss of $1.71 billion in the fourth quarter of last year, marking a return to the red. Earnings per share also missed expectations at $2.55. While visitor traffic increased by 4.6%, the average purchase amount decreased by 1.5%. Sales for the 2024 fiscal year are projected to be between $31 billion and $32 billion.
The stock price plummeted. On the New York Stock Exchange that day, Dollar Tree's stock closed at $128.42 per share, down 14.21% from the previous trading day.
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