Dollar stores blew up after the Great Recession, becoming a go-to for Americans struggling to make ends meet during the downturn and for years after.
These days, they're struggling. In the past month, Family Dollar said it will close nearly 1,000 stores and 99 Cents Only said it will go out of business.
Both companies said inflation and shoplifting have contributed to their troubles. But, as my colleague Nathaniel Meyersohn writes, they planted the seeds for their own undoing years ago.
Years of strategic mistakes and underinvestment have plagued Family Dollar and 99 Cents Only.
Family Dollar has around 8,000 stores, mostly in cities. It was acquired in 2015 by Dollar Tree, which thought the deal would help it compete against larger rivals, like Dollar General.
(Note: We can all agree having "Dollar" in the name makes that last sentence a little confusing, so if it helps, use my visual: Think of a big tree that has a family standing beneath it — that's the Dollar Tree-Family Dollar group. And across the street is George Washington, noted general, person whose face is on dollar bills — that's Dollar General. You're welcome!)
Since the tie-up in 2015, Family Dollar "has caused Dollar Tree nothing but hassle," Neil Saunders, managing director of GlobalData, said in a recent note to clients. "Basically, almost 10 years on, Dollar Tree is still sifting through the mess it inherited and has not been able to completely turn around."
99 Cents Only, a chain on the West Coast and Texas, has also suffered from missteps, such as opening stores that were too large and inefficient to run.
"They never had the right business model. They were never going to get there," said David D'Arezzo, a former top executive at Dollar General.
'They didn't know how to run Family Dollar'
Family Dollar's woes date back more than a decade. Messy stores, high prices and over-expansion plagued the company.
At the time Dollar Tree stepped in to buy Family Dollar, Dollar Tree was the smaller company and the two had very different strategies.
It wasn't a good match.
"When Dollar Tree bought Family Dollar, they didn't really know what they were doing," D'Arezzo said. "They didn't know how to run Family Dollar."
Family Dollar stores were in worse condition than its new management expected, and early strategies to improve sales, such as selling beer, came up short.
Even though Family Dollar has renovated thousands of stores in recent years, many are still poorly maintained. The company was hit with a record $41.6 million fine by the Justice Department this year for violating product safety standards after selling items that were stocked in a rat-infested warehouse in West Memphis filled with live, dead and decaying rodents.
Executives say Family Dollar can still succeed, however.
The retail chain has a new CEO and management team, and it has been lowering its prices to draw more customers, adding more private-label brands and investing in the supply chain.
"While we are in the early stages of our transformation journey under our new management team, we are proud of the progress we've made to date, and see a long runway for growth ahead for our business," a company spokesperson said.
Read Nathaniel's full report on the dollar store decline here.
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