This week, Dollar Tree Inc., the parent company of the budget stores Dollar Tree and Family Dollar, said it will close 390 Family Dollar stores in 2019. The news comes on the heels of the company trying to revamp these stores last year to make them more exciting for shoppers, but the closures signal how hard it is to turn around a struggling brand in today’s retail landscape.
Dollar Tree and Family Dollar are budget-friendly stores, known for selling groceries, accessories, and home goods at prices that start at $1 and don’t typically go past $10. The two stores used to be rival discount chains, but in 2015, Dollar Tree bought Family Dollar for $8.5 billion. The acquisition gave Dollar Tree a total of 13,000 stores total, in the US and Canada, with about $19 billion in yearly revenue.
Folding these two companies together has not been easy, though, and analysts have said that Family Dollar has become more of a problem for Dollar Tree than a winning addition to its portfolio. With the announcement that it was closing almost 400 stores, the company reported a $2.3 billion loss.
This most recent round of closures is just another addition to the pileup of brands shuttering stores, filing for bankruptcy, and going out of business. Brick-and-mortar stores are struggling, as they fail to face off with online competitors, and are stuck with tons of stores that have high rent prices. Even discount retailers like Dollar Tree, once hailed as the antidote to Amazon, must figure out how to keep stores afloat.
Why Dollar Tree is struggling
There are a handful of discount retailers in the US, including Dollar General, 99 Cents Only, and Five Below. But while fellow off-price retail stores like T.J. Maxx and Marshall’s thrive on a chaotic environment, where stores are jam-packed with a sometimes disorganized array of discounted products, shoppers have pointed out that Dollar Tree and Family Dollar are often disappointing destinations. The chains are plagued with empty shelves and messy stores.
Dollar stores have long been considered by retail analysts as able to compete with big box brands because of their additional discounts and their often-smaller stores. In the past few years, though, Walmart has been experimenting with smaller-store concepts. Walmart has also been aggressively trying to squeeze out its dollar-store competitors by lowering the costs of items like detergent and cereal.
Amazon, too, has had its eye on the dollar store space. Last year, it launched a new section on its site for products $10 and under. These “Bargain Finds” include electronics, home goods, clothes, and accessories — it’s all strikingly similar to what Dollar Tree sells. While e-commerce brands used to ignore products with such low margins, Amazon now offers free shipping on these items too, no doubt with the incentive of indoctrinating budget shoppers and turning them into Amazon evangelists.
Both Walmart and Amazon have also been expanding their private-label products, as has Target. That means shoppers can now buy Amazon-brand toilet paper, Target-brand clothes, and Walmart-brand furniture, all of which come with a steep discount.
Dollar Tree was also hit hard by retail tariffs under President Donald Trump. According to Fortune, it imports 42 percent of its products from China, and the tariffs impacted 10 percent of the store’s inventory.
Dollar Tree isn’t the only budget brand that’s been hurting. In February, the discount shoe retailer Payless filed for bankruptcy for a second time, and announced it was closing all 2,500 stores it was operating in the US and Puerto Rico. Payless struggled with a bloated store portfolio, when a lot of its customers were flocking to online shopping. It also had a hard time competing with digital shoe sites like Amazon, as well as Amazon-owned Zappos and 6 PM.
The dollar store concept is still making money — Dollar Tree earned about $22 billion last year, as did its rival Dollar General. Many of these stores are in rural areas, where they can be the best option for customers who rely on deep discounts (although dollar stores are often criticized for hurting low-income neighborhoods, since they don’t stock fresh food and often put local stores out of business).
Dollar stores are particularly popular in distressed areas of the US, where the middle class is eroding. While some wealthy shoppers are turning to high-end destinations, many middle-and low-income shoppers are turning away from traditional department stores like Macy’s or Sears and opting for dollar stores instead.
Gary Philbin, the CEO of Dollar Tree, is keen on continuing to update its stores, in the hopes that it’ll find the right formula to face the competition. The company plans to renovate 1,000 stores and introduce new profit-friendly products like freezer food and alcohol.
Still, Dollar Tree has its work cut out for it, especially when it seems like Amazon and Walmart are rolling out new budget-friendly categories every day. As one finance blogger wrote, “instead of improving operations, Dollar Tree puts a new sign on the same-old building. Once inside, customers find the same employees, lousy service, and empty shelves. Obviously, such shenanigans can only sustain the company for so long.”
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