These are tough times for two big US dollar store chains. 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. While inflation has pressured the companies’ low-income customer base and shoplifting has squeezed their profits, those factors alone can’t explain their difficulties.
Years of strategic mistakes and underinvestment have plagued Family Dollar and 99 Cents Only, retail analysts say. Both brands were acquired by other companies and faltered under their new owners.
Family Dollar has around 8,000 stores mostly in cities, and the chain has struggled since Dollar Tree bought it in 2015 for $8.5 billion. Dollar Tree believed acquiring Family Dollar would help it compete against larger rivals. But it misjudged the deal.
Since the “botched acquisition,” Family Dollar “has caused Dollar Tree nothing but hassle,” Neil Saunders, managing director of GlobalData, said in a recent note to clients. “Basically, almost ten 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, including 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 and other retailers.
Here’s a look at what’s gone wrong at both chains.
‘They didn’t know how to run Family Dollar’
Family Dollar will close 600 locations this year, and 370 stores over the next several years as store leases expire. These locations are unprofitable for the company, Dollar Tree CEO Rick Dreiling said on a call with analysts last month.
“Family Dollar is a victim of the macro environment out there,” he said.
But Family Dollar’s woes date back more than a decade. Messy stores, high prices and over-expansion plagued the company, analysts say.
“It’s no secret that Family Dollar’s challenges stem back much much further,” said Kelly Bania, a retail analyst at BMO Capital Markets. “They have massively underinvested in the store base over the last decade or two.”
