The company will close 600 Family Dollar locations in the first half of fiscal 2024. An additional 370 Family Dollar and 30 Dollar Tree stores will not renew their leases. The affected stores — about 12 percent of Family Dollar locations — racked up a net loss of “approximately $730 million on an annual run rate basis,” chief executive Richard Dreiling said Wednesday during a call with investors.
“We took a thoughtful and deliberate approach to address underperforming stores by considering each individual store’s performance, local operating environment, and our broader need for scale and operating efficiencies across the portfolio.”
Shares tumbled on the news, closing down 14.2 percent.
Dollar Tree acquired Family Dollar in 2015 for $8.5 billion and has struggled to boost the brand to meet its flagship stores’ appeal, said Neil Saunders, managing director of the analytics company GlobalData’s retail division.
“Despite some recent investments in price and attempts to make stores more pleasant places to shop, Family Dollar remains a laggard in the value segment,” he said in a statement. “Its core shoppers are not particularly loyal and tend to use it out of convenience more than anything else.”
The Chesapeake, Va.-based chain, which operates about 16,774 stores in 48 states and five Canadian provinces, has fallen behind in the grocery segment — a driver for consumers looking for cheap, quality products. Dollar stores have a limited selection, so they focus on popular brands and products with shorter shelf lives than those found in traditional supermarkets. Many food manufacturers sell specially made products, usually in smaller sizes, to meet the lower price points of such retailers.
Dollar Tree’s chief competitor, Dollar General, recently announced plans to sell fresh fruits and vegetables at more than 5,000 stores, about a quarter of its locations. The chain has been growing rapidly: It has added more than 4,000 locations in the past five years, opening its 20,000th store last month.
Dreiling said that Dollar Tree is expanding its multi-price-point strategy in the food aisles and that it has “substantially completed the rollout of $3, $4, and $5 frozen and refrigerated items, which are now available in more than 6,500 stores.” He did not specify if the same strategy was being applied at Family Dollar stores.
The company is taking notes from the value retailers Lidl and Aldi, which have expanded their U.S. footprints in recent years. Dreiling said the company is building out Family Dollar’s private-label offerings, having added about 550 products under its in-house brand.
Dollar Tree’s general-merchandise categories are also facing mounting competition from Chinese e-commerce websites such as Shein and Temu, which carry an expansive selection of inexpensive housewares, accessories and decor that people can order from the comfort of their own homes.
Meanwhile, Dollar Tree alone is seeing growth in its higher-income customer base, adding 3.4 million shoppers last year, most of whom are from households earning more than $125,000 a year, Dreiling said. The CEO credited the increased variety of products in stores and noted that the trend is true across the country.
The company was in the news last month after agreeing to pay more than $41.6 million to resolve a Justice Department investigation involving a rat-infested Family Dollar warehouse. The agency called it the largest-ever monetary criminal penalty in a food safety case.
