Biz News: Dollar Tree $9 Billion Problem: Family Dollar Isn’t Paying Off UPDATE: IT'S OVER 1K stores close!
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Dollar Tree’s $9 Billion Problem: Family Dollar Isn’t Paying Off
Weak sales at the acquired chain are hurting Dollar Tree’s financial results; CEO counts on renovations, store closures, more beer
A Family Dollar in Brooklyn. Nearly half of the chain’s stores are in urban locations. PHOTO: RICHARD B. LEVINE/NEWSCOM/ZUMA PRESS
50 COMMENTS
By
Sarah Nassauer
Nov. 5, 2018 7:00 a.m. ET
Dollar Tree Inc. DLTR 0.02% won a hard-fought battle to buy Family Dollar more than three years ago, beating out Dollar General Corp. for the roughly 8,200-store chain that caters to low-income shoppers by selling things as diverse as $40 wireless speakers and 55-cent cans of Vienna sausage.
Dollar Tree at the time was the smallest of the three discount retailers, and sought more heft to compete with Dollar General and the likes of Walmart Inc. and Target Corp. But now Dollar Tree executives are trying to prove the nearly $9 billion cash-and-stock purchase wasn’t a mistake.
Family Dollar’s sales have been sputtering, hurt by neglected stores, poor product selection and unhappy workers, according to analysts. The problems date to before Dollar Tree bought the business. But executives had hoped to be further along in solving them, say people familiar with the company, and now the stores are dragging on Dollar Tree’s sales and stock price.
In the most recent quarter, sales at Dollar Tree stores rose 3.7%, the same growth figure reported by rival Dollar General amid a strong economy and continued demand for inexpensive items. But Family Dollar’s sales—which account for roughly half of the corporate total—were flat, cutting Dollar Tree’s overall sales growth to 1.8%.
Dollar Tree’s stock was off 21% year to date through October, while Dollar General shares were up 20%.
No BargainDollar Tree has struggled to match its mainrival since buying Family Dollar in July 2015.Year-over-year change in same-store salesSource: The companies
%Dollar GeneralDollar Tree2015’16’17’18-1012345
“At this point, [Family Dollar] has been losing traffic for years. The store managers are tired, employees are tired and the energy and culture are just not there,” said Karen Short, retail analyst at Barclays. “I don’t know if there is any easy fix.”
Dollar Tree Chief Executive Gary Philbin said Family Dollar is fixable and managers are energized, but the chain needs more work than the company originally thought. Mr. Philbin, who became CEO of Dollar Tree last year and ran Family Dollar after the acquisition, said basic changes such as clearing out aisles, stocking shelves better and waxing the floors haven’t increased sales in some stores the way the company expected.
MORE
Dollar Tree stores are mostly in suburban locations and sell all items for $1, often to middle-income shoppers browsing knickknacks for fun. Dollar General is concentrated in rural areas and sells products at different price points to attract shoppers from households earning $40,000 a year or less. Family Dollar aims to attract similar low-income shoppers, but nearly half its stores are in urban locations. Including Family Dollar outlets, Dollar Tree has about 15,000 U.S. stores, roughly equal with Dollar General.
Family Dollar’s drag on Dollar Tree stands out at the same time that competitor Dollar General is growing rapidly and a strong economy is boosting sales at big-box competitors including Walmart and Target.
Related Video
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The retail industry is undergoing another major shift -- to e-commerce. How did we get here? Photo: Associated Press
Dollar General, which is based in Tennessee, has ramped up new store openings since it lost out on buying Family Dollar, adding about 1,000 a year in mostly rural locations. That is in part because Dollar General executives say they see a window of opportunity to head off expansion by Dollar Tree as it tends to Family Dollar’s woes.
This year Virginia-based Dollar Tree plans to renovate 500 Family Dollar stores, on top of the 377 done last year, and intends to accelerate renovations next year to boost sales further, Mr. Philbin said. It intends to put more snacks and drinks near registers, add more frozen and refrigeration units, and sell more items for $1, he said.
It also will change the layout of stores, he said. Store-brand diapers are best sellers but sit across from dog food in some Family Dollar stores because both products need deep shelves. In renovated stores, baby and toddler items will be stocked across from diapers to better catch parents’ eyes, Mr. Philbin said. And the company is selling beer in more locations and revamping Family Dollar’s store-brand products.
Mr. Philbin said the company plans to close an unspecified number of Family Dollar stores and turn some locations into Dollar Tree outlets. He said there is still room for Dollar Tree to add Family Dollar stores in rural America because grocery, drugstore and big-box chains aren’t adding to their totals. “I think in rural America, it’s an opportunity,” he said.
On Different BranchesShare performance year-to-dateSource: SIXAs of Nov. 6
%Dollar GeneralDollar TreeJan. ’18AprilJulyOct.-30-20-100102030
Investors have speculated that an activist investor could take a position in Dollar Tree to advocate for a sale of Family Dollar.
In 2014, activist investors—including Carl Icahn and Nelson Peltz’s Trian Fund Management—pushed Family Dollar to sell itself. Today, there isn’t a clear buyer if it were put on the block, some analysts say.
One reason Dollar General lost the contest for Family Dollar three years ago were antitrust concerns on the part of Family Dollar’s board. Those issues could be magnified now as Dollar General has added thousands of stores, analysts say.
Dollar General will “look at anything that’s an opportunity to continue to grow,” said its CEO, Todd Vasos, at a recent investor meeting when asked about a possible acquisition.
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Mr. Philbin declined to comment about activist interest in Dollar Tree but said the company’s current board-approved plan to accelerate full-store renovations will buck up Family Dollar.
“This sector is the right sector to be in,” Mr. Philbin said. “Discount, small-box retail. I’d rather be here than anywhere else.”
Weak sales at the acquired chain are hurting Dollar Tree’s financial results; CEO counts on renovations, store closures, more beer
A Family Dollar in Brooklyn. Nearly half of the chain’s stores are in urban locations. PHOTO: RICHARD B. LEVINE/NEWSCOM/ZUMA PRESS
50 COMMENTS
By
Sarah Nassauer
Nov. 5, 2018 7:00 a.m. ET
Dollar Tree Inc. DLTR 0.02% won a hard-fought battle to buy Family Dollar more than three years ago, beating out Dollar General Corp. for the roughly 8,200-store chain that caters to low-income shoppers by selling things as diverse as $40 wireless speakers and 55-cent cans of Vienna sausage.
Dollar Tree at the time was the smallest of the three discount retailers, and sought more heft to compete with Dollar General and the likes of Walmart Inc. and Target Corp. But now Dollar Tree executives are trying to prove the nearly $9 billion cash-and-stock purchase wasn’t a mistake.
Family Dollar’s sales have been sputtering, hurt by neglected stores, poor product selection and unhappy workers, according to analysts. The problems date to before Dollar Tree bought the business. But executives had hoped to be further along in solving them, say people familiar with the company, and now the stores are dragging on Dollar Tree’s sales and stock price.
In the most recent quarter, sales at Dollar Tree stores rose 3.7%, the same growth figure reported by rival Dollar General amid a strong economy and continued demand for inexpensive items. But Family Dollar’s sales—which account for roughly half of the corporate total—were flat, cutting Dollar Tree’s overall sales growth to 1.8%.
Dollar Tree’s stock was off 21% year to date through October, while Dollar General shares were up 20%.
No BargainDollar Tree has struggled to match its mainrival since buying Family Dollar in July 2015.Year-over-year change in same-store salesSource: The companies
%Dollar GeneralDollar Tree2015’16’17’18-1012345
“At this point, [Family Dollar] has been losing traffic for years. The store managers are tired, employees are tired and the energy and culture are just not there,” said Karen Short, retail analyst at Barclays. “I don’t know if there is any easy fix.”
Dollar Tree Chief Executive Gary Philbin said Family Dollar is fixable and managers are energized, but the chain needs more work than the company originally thought. Mr. Philbin, who became CEO of Dollar Tree last year and ran Family Dollar after the acquisition, said basic changes such as clearing out aisles, stocking shelves better and waxing the floors haven’t increased sales in some stores the way the company expected.
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Dollar Tree stores are mostly in suburban locations and sell all items for $1, often to middle-income shoppers browsing knickknacks for fun. Dollar General is concentrated in rural areas and sells products at different price points to attract shoppers from households earning $40,000 a year or less. Family Dollar aims to attract similar low-income shoppers, but nearly half its stores are in urban locations. Including Family Dollar outlets, Dollar Tree has about 15,000 U.S. stores, roughly equal with Dollar General.
Family Dollar’s drag on Dollar Tree stands out at the same time that competitor Dollar General is growing rapidly and a strong economy is boosting sales at big-box competitors including Walmart and Target.
Related Video
A Brief History of Retail
The retail industry is undergoing another major shift -- to e-commerce. How did we get here? Photo: Associated Press
Dollar General, which is based in Tennessee, has ramped up new store openings since it lost out on buying Family Dollar, adding about 1,000 a year in mostly rural locations. That is in part because Dollar General executives say they see a window of opportunity to head off expansion by Dollar Tree as it tends to Family Dollar’s woes.
This year Virginia-based Dollar Tree plans to renovate 500 Family Dollar stores, on top of the 377 done last year, and intends to accelerate renovations next year to boost sales further, Mr. Philbin said. It intends to put more snacks and drinks near registers, add more frozen and refrigeration units, and sell more items for $1, he said.
It also will change the layout of stores, he said. Store-brand diapers are best sellers but sit across from dog food in some Family Dollar stores because both products need deep shelves. In renovated stores, baby and toddler items will be stocked across from diapers to better catch parents’ eyes, Mr. Philbin said. And the company is selling beer in more locations and revamping Family Dollar’s store-brand products.
Mr. Philbin said the company plans to close an unspecified number of Family Dollar stores and turn some locations into Dollar Tree outlets. He said there is still room for Dollar Tree to add Family Dollar stores in rural America because grocery, drugstore and big-box chains aren’t adding to their totals. “I think in rural America, it’s an opportunity,” he said.
On Different BranchesShare performance year-to-dateSource: SIXAs of Nov. 6
%Dollar GeneralDollar TreeJan. ’18AprilJulyOct.-30-20-100102030
Investors have speculated that an activist investor could take a position in Dollar Tree to advocate for a sale of Family Dollar.
In 2014, activist investors—including Carl Icahn and Nelson Peltz’s Trian Fund Management—pushed Family Dollar to sell itself. Today, there isn’t a clear buyer if it were put on the block, some analysts say.
One reason Dollar General lost the contest for Family Dollar three years ago were antitrust concerns on the part of Family Dollar’s board. Those issues could be magnified now as Dollar General has added thousands of stores, analysts say.
Dollar General will “look at anything that’s an opportunity to continue to grow,” said its CEO, Todd Vasos, at a recent investor meeting when asked about a possible acquisition.
–– ADVERTISEMENT ––
Mr. Philbin declined to comment about activist interest in Dollar Tree but said the company’s current board-approved plan to accelerate full-store renovations will buck up Family Dollar.
“This sector is the right sector to be in,” Mr. Philbin said. “Discount, small-box retail. I’d rather be here than anywhere else.”
Them dollar stores are tricky. They probably do well when the economy is bad.
EXACTLY. Considering picking up some stock, but the math behind acquisitions can be tricky...
You shop there, you get what you pay for. 
Family dollar aint no real dollar store... So i thought they were buying them to get them out of the way. Buy them out n take their locations! Cause for me n what I see is dollar trees popping up everywhere!! N them shits stay packed! Family dollar not packed at all
Everytime I go in Family Dollar I always see somebody stealing something.
https://www.economist.com/united-states/2018/01/25/the-profitable-business-of-selling-to-the-hard-up
The profitable business of selling to the hard-up
print-edition icon Print edition | United StatesJan 25th 2018 | LEWISBURG, TENNESSEE
6-7 minutes
“THEY want to build one every four miles,” says the cashier at Dollar General, a discount shop, in Lewisburg, a small town in the rolling hills of central Tennessee. Situated on a big parking lot, next to a provider of payday loans open 24 hours a day, a supermarket chain called Priceless and Dirt Cheap, another southern chain of discount shops flogging the unsold or returned merchandise of other retailers, the shop is one of three Dollar Generals in Lewisburg. Tennessee is the home state of Dollar General, which in recent years overtook its rivals to become the retailer of choice of low-income Americans, so it has one of the denser statewide networks of shops. Yet with well over 14,000 outlets across America (about the same number as there are McDonald’s restaurants) almost 75% of Americans now live within five miles of a Dollar General.
“Over the last five years a new Dollar General opened every four-and-a-half hours,” says Garrick Brown at Cushman & Wakefield, a property agent. The chain’s profits have risen like a helium balloon since the recession, to more than double those of Macy’s, one of the most famous brands in retail, in the past fiscal year. Its market value is a whopping $28bn.
How does Dollar General thrive when so many other retailers are struggling, downsizing or, in the case of Sears, Bon-Ton, 99 Cents Only, Neiman Marcus, Land’s End, Nine West and J. Crew, are close to bankruptcy? One reason is that it filled a void. “They set up shop where Walmart does not want to make an effort,” says Christopher Merrett at the Illinois Institute for Rural Affairs, referring to the world’s biggest retailer. Around 70% of Dollar General’s customers live in rural places which have been slow to recover from the recession. Another reason for its success is that it caters to those who are financially stretched. Dollar General sells everything from packaged food and toys to linens and household-cleaning products, but in smaller packages for those who cannot afford to buy in bulk. And although, contrary to popular belief, not all items cost a dollar, a quarter of them do; three-quarters cost less than $5, and most of the rest will set you back less than $10.
Dollar General promises low prices and quick, convenient shopping, but so do other dollar stores, such as Dollar Tree, Family Dollar or the near-bankrupt 99 Cents Only. Their secret sauce, explains Mike Paglia at Kantar, a retail consultant, is to pick a good site. They vet them diligently, opening their shops next to highways, post offices, churches or schools. (A church close to the array of deep discounters in Lewisburg assures its worshippers that “God has a 100% refund policy”.) In Uptown, a down-at-heel neighbourhood in Chicago that is home to one of the few Dollar Generals in big cities, the company picked a spot behind a big parking lot next to a Shell petrol station, a branch of Chase, Chicago’s most popular bank, and Planned Parenthood, a non-profit offering advice on family planning.
The typical Dollar General shopper is white, working class and tends to rely on some form of government assistance. “The economy is continuing to create more of our core customer,” the company’s chief executive, Todd Vasos, told the Wall Street Journal in an unguarded moment in December. He is also likely to be a supporter of President Donald Trump, says Mr Merrett, although this is changing as rural America gains pockets of diversity, for example next to slaughterhouses such as Tyson’s plant in Storm Lake, Iowa. Dollar General has tried to expand in ethnically diverse, left-leaning cities: in 2015 it tried to buy the more urban Family Dollar. Last year it took over 322 mostly urban stores from a private-equity firm that had bought them from Dollar Tree, which had trumped Dollar General in the battle over Family Dollar and needed to shrink a bit for antitrust reasons. The new urban shops will be laboratories for a different type of customer. On a frigid evening just before Christmas, the shoppers at Dollar General’s Uptown outlet were mostly black or brown—and almost certainly Democrats.
Dollar General intends to continue its vertiginous expansion, with plans to open another 900 shops this year. Yet rural communities account for only 46m, or 15%, of the population—and they are shrinking fast. Many small towns have only 75% of the population they had 25 years ago. In 33 counties in Illinois, the population peaked over a century ago, says Mr Merrett. To keep expanding so rapidly, Dollar General will need to appeal to those with a higher income than the working poor. It has already made inroads into more affluent groups. According to Nielsen, a marketing researcher, 43% of customers with household income of $29,000 or less but also 23% of those earning more than $70,000 said they shopped at a dollar store in 2016. The new shop in Lewisburg is on Yell Road, which is lined with pretty houses and big gardens; the cars parked in front of the shop are mostly gleaming SUVs and big pickup trucks. The “market” outlet offers fresh shrimp, Chobani yogurts and other fancy foodstuffs.
Walmart’s rapid rise caused resentment in rural communities as it killed smaller local shops and was said to treat its workers poorly. Dollar General, however, ventures into places where the last grocery shop often closed years ago, which is why its reception by locals tends to be much friendlier. The same is likely to be true as Dollar General expands into troubled urban neighbourhoods such as Chicago’s South Side, where rents are cheap. In these so-called food deserts, an investment by any retailer is good news.
The profitable business of selling to the hard-up
print-edition icon Print edition | United StatesJan 25th 2018 | LEWISBURG, TENNESSEE
6-7 minutes
“THEY want to build one every four miles,” says the cashier at Dollar General, a discount shop, in Lewisburg, a small town in the rolling hills of central Tennessee. Situated on a big parking lot, next to a provider of payday loans open 24 hours a day, a supermarket chain called Priceless and Dirt Cheap, another southern chain of discount shops flogging the unsold or returned merchandise of other retailers, the shop is one of three Dollar Generals in Lewisburg. Tennessee is the home state of Dollar General, which in recent years overtook its rivals to become the retailer of choice of low-income Americans, so it has one of the denser statewide networks of shops. Yet with well over 14,000 outlets across America (about the same number as there are McDonald’s restaurants) almost 75% of Americans now live within five miles of a Dollar General.
“Over the last five years a new Dollar General opened every four-and-a-half hours,” says Garrick Brown at Cushman & Wakefield, a property agent. The chain’s profits have risen like a helium balloon since the recession, to more than double those of Macy’s, one of the most famous brands in retail, in the past fiscal year. Its market value is a whopping $28bn.
How does Dollar General thrive when so many other retailers are struggling, downsizing or, in the case of Sears, Bon-Ton, 99 Cents Only, Neiman Marcus, Land’s End, Nine West and J. Crew, are close to bankruptcy? One reason is that it filled a void. “They set up shop where Walmart does not want to make an effort,” says Christopher Merrett at the Illinois Institute for Rural Affairs, referring to the world’s biggest retailer. Around 70% of Dollar General’s customers live in rural places which have been slow to recover from the recession. Another reason for its success is that it caters to those who are financially stretched. Dollar General sells everything from packaged food and toys to linens and household-cleaning products, but in smaller packages for those who cannot afford to buy in bulk. And although, contrary to popular belief, not all items cost a dollar, a quarter of them do; three-quarters cost less than $5, and most of the rest will set you back less than $10.
Dollar General promises low prices and quick, convenient shopping, but so do other dollar stores, such as Dollar Tree, Family Dollar or the near-bankrupt 99 Cents Only. Their secret sauce, explains Mike Paglia at Kantar, a retail consultant, is to pick a good site. They vet them diligently, opening their shops next to highways, post offices, churches or schools. (A church close to the array of deep discounters in Lewisburg assures its worshippers that “God has a 100% refund policy”.) In Uptown, a down-at-heel neighbourhood in Chicago that is home to one of the few Dollar Generals in big cities, the company picked a spot behind a big parking lot next to a Shell petrol station, a branch of Chase, Chicago’s most popular bank, and Planned Parenthood, a non-profit offering advice on family planning.
The typical Dollar General shopper is white, working class and tends to rely on some form of government assistance. “The economy is continuing to create more of our core customer,” the company’s chief executive, Todd Vasos, told the Wall Street Journal in an unguarded moment in December. He is also likely to be a supporter of President Donald Trump, says Mr Merrett, although this is changing as rural America gains pockets of diversity, for example next to slaughterhouses such as Tyson’s plant in Storm Lake, Iowa. Dollar General has tried to expand in ethnically diverse, left-leaning cities: in 2015 it tried to buy the more urban Family Dollar. Last year it took over 322 mostly urban stores from a private-equity firm that had bought them from Dollar Tree, which had trumped Dollar General in the battle over Family Dollar and needed to shrink a bit for antitrust reasons. The new urban shops will be laboratories for a different type of customer. On a frigid evening just before Christmas, the shoppers at Dollar General’s Uptown outlet were mostly black or brown—and almost certainly Democrats.
Dollar General intends to continue its vertiginous expansion, with plans to open another 900 shops this year. Yet rural communities account for only 46m, or 15%, of the population—and they are shrinking fast. Many small towns have only 75% of the population they had 25 years ago. In 33 counties in Illinois, the population peaked over a century ago, says Mr Merrett. To keep expanding so rapidly, Dollar General will need to appeal to those with a higher income than the working poor. It has already made inroads into more affluent groups. According to Nielsen, a marketing researcher, 43% of customers with household income of $29,000 or less but also 23% of those earning more than $70,000 said they shopped at a dollar store in 2016. The new shop in Lewisburg is on Yell Road, which is lined with pretty houses and big gardens; the cars parked in front of the shop are mostly gleaming SUVs and big pickup trucks. The “market” outlet offers fresh shrimp, Chobani yogurts and other fancy foodstuffs.
Walmart’s rapid rise caused resentment in rural communities as it killed smaller local shops and was said to treat its workers poorly. Dollar General, however, ventures into places where the last grocery shop often closed years ago, which is why its reception by locals tends to be much friendlier. The same is likely to be true as Dollar General expands into troubled urban neighbourhoods such as Chicago’s South Side, where rents are cheap. In these so-called food deserts, an investment by any retailer is good news.
These dollar stores used to be good when things cost about a dollar, not anymore. I just go to the regular stores now, prices are about the same or less.
You not suppose to buy real food there... Juss lil things for bbqs , small gatherings, etc... Example have a Superbowl party need lil bowls to pour chips into..prob get like 5 of them shits for like a buck... Need a bucket to place shit in..1 buck.. Need some extra hangers like 8 for a dollar
If they placed them shit s next to rite aide they'd make more money...they'd be the cheaper option for cacs... I don't think i seen any of them downtown
The trouble with the economy is that when its good its bad for many. Especially Lower Middle class. That's the main reason you have these sub-discount stores. They are today's Five and Dime. I have to say that in general, the five and ten stores I remember had better quality merchandise than what I see in these dollar stores today. Some of them make me feel like the damn place might collapse right on my head.
Family dollar ain't cheap tho, I use to go there but their prices were getting high. I was better off going to Walmart or Dollar Tree. I get stuff like toothpaste, hand soap and other hygiene type products from Dollar Tree.
Yeah,there and Wal-mart is nothing more than police station cause someone always gets the urge.
They did what Wal-marts did and that's open any and everywhere and you can spread yourself thin by doing such a thing and trying to move next to an existing store is a no no because people who are Target shoppers are going to be that no matter what so you being next to them will hurt you.
They got too many Family Dollar stores. If it's a Dollar General in the area it's 3-4 Family Dollars in the area.
They screwing themselves trying to smother Dollar General, but Dollar General got motherfuckers thats gonna shop there no matter what.
They need to focus on organizing their stores. They expect employees to stock, unload trucks, help customers, put up shit people didn't buy.
You go to the cash register ain't nobody there, they trying to help somebody, they got shit on dollys all in the aisles. Shit in the store halfway put up.
They have 2-3 employees in there trying to do ten jobs.
They screwing themselves trying to smother Dollar General, but Dollar General got motherfuckers thats gonna shop there no matter what.
They need to focus on organizing their stores. They expect employees to stock, unload trucks, help customers, put up shit people didn't buy.
You go to the cash register ain't nobody there, they trying to help somebody, they got shit on dollys all in the aisles. Shit in the store halfway put up.
They have 2-3 employees in there trying to do ten jobs.
In Family Dollar their prices are all over the place. So if Family Dollar is selling the same crap as the Dollar Tree but Dollar Tree is selling it for only a dollar, why would anyone go to Family Dollar?
Stock wise the purchase of Family Dollar never made sense IMO.
Dollar Tree to close 1,000 stores after ‘botched’ Family Dollar takeover
Dollar Tree acquired Family Dollar for more than $8bn almost a decade ago but has had difficulty absorbing the chain
Dollar Tree and Family Dollar will close 1,000 stores following fourth-quarter loss
Dollar Tree announced it will record a $950 million impairment against Family Dollar's trade name in addition to a $1.07 billion goodwill charge.