Dollar stores are shutting down across America. They did this to themselves | CNN Business (2024)

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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.

Dollar stores are shutting down across America. They did this to themselves | CNN Business (1)

99 Cents Only filed for bankruptcy this week.

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.”

In 2014, activist investors— includingCarl IcahnandNelson Peltz — pushed Family Dollar to sell itself. A year later, Dollar Tree bought the company.

At the time, Dollar Tree was smaller than Family Dollar. While Dollar Tree and Family Dollar share similar names, they have different strategies.

Dollar Tree is mostly suburban, and caters to middle-income shoppers with party supplies and knickknacks. It acquired Family Dollar — which sells more basic foods and household essentials — to grow with lower-income customers in urban and rural areas.

Years of mismanagement and poor conditions in stores have hurt Family Dollar’s brand. Scott Olson/Getty Images Related article Family Dollar and Dollar Tree will close 1,000 stores

The combined company hoped that by joining forces it could grow its customer base, reduce costs and fend off bigger retailers like Dollar General, which is located primarily in rural areas.

But analysts say the match between the two different chains was a poor fit, and Dollar Tree has struggled to manage the larger Family Dollar store base.

“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 Dollar Tree management expected, and early strategies to improve sales, such as selling beer, fell short.

Many Family Dollar stores were located too close to each other and cannibalized each other’s own sales, too, D’Arezzo said.

“Family Dollar’s sales have been sputtering, hurt by neglected stores, poor product selection and unhappy workers,” The Wall Street Journal reported in 2018. Family Dollar “needs more work than the company originally thought.”

A year later, an activist investor pushed for a sale of the “underperforming” Family Dollar business, and Family Dollar announced it would close 390 stores.

Even though Family Dollar has renovated thousands of stores in recent years, many stores are still poorly maintained, analysts say. Family Dollar 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.

Dollar Tree and Family Dollar 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.

A “well-run and well-located Family Dollar store is a powerful retail force,” CEO Dreiling said.

Falling behind

99 Cents Only said that it filed for bankruptcy because “the last several years have presented significant and lasting challenges” in retail, including the impact of the pandemic, inflation and rising shoplifting.

But 99 Cents Only’s challenges stem back further. The retail chain has not been profitable since 2015.

Customers wait in line to order below signage for the Costco Kirkland Signature $1.50 hot dog and soda combo, which has maintained the same price since 1985 despite consumer price increases and inflation, at the food court outside a Costco Wholesale Corp. store on June 14, 2022 in Hawthorne, California. Patrick T. Fallon/AFP/Getty Images Related article Why Costco’s hot dog is still $1.50 when everything has gotten so expensive

The company has more than 370 stores in California, Nevada, Arizona and Texas — 265 of which are in California. It was taken private in 2011 in a $1.6 billion leveraged buyout, and the company took on even more debt in the following years to stay afloat.

At the time of the deal, 99 Cents Only had the second-highest profit margin and the most sales per square foot among its rivals, Bloomberg reported.

But 99 Cents Only quickly fell behind. The company introduced a strategy to raise the height of shelves, known as Go Taller, but it led to increases in spoiled food and broken products as merchandise fell to the floor, according to Bloomberg.

The company struggled to keep up with larger rivals such as Walmart, Costco and Dollar General, and it lost money every year beginning in 2016. “The increasingly competitive landscape of the discount retail industry continued to take its toll,” 99 Cents Only said in its bankruptcy filing this week.

While competitors expanded, 99 Cents Only’s high debt load left it unable to invest to improve stores, its supply chain or digital strategy.

99 Cents Only was “disadvantaged by limited financial flexibility and inability to devote greater resources to pursue new store growth,” the company said in its filing.

99 Cents Only was also hurt by its store sizes, which were costly to operate, and its focus on low-margin groceries.

The company’s stores are on average approximately 20,000 square feet, more than double the size of a typical dollar store chain.

“It was like trying to run a McDonald’s on five times the size,” D’Arezzo said. “They were doomed.”

Dollar stores are shutting down across America. They did this to themselves | CNN Business (2024)


What are the negative effects of dollar stores? ›

Since dollar stores rarely stock fresh fruits and vegetables, consumers usually reduce their spending on fresh produce. Coupled with the loss of grocery stores, this results in an overall decline in access to fresh produce for a community, ultimately leading to nutritional inequality.

Why are Dollar General stores such a mess? ›

Aisles at many Dollar General stores have been clogged with everything from dog food to school supplies over the last few years. Employees have told Insider that one cause for the mess is that Dollar General hasn't allocated enough worker hours to maintaining them.

Why did the 99 Cent store close? ›

The store had been struggling for several years.

The sale saddled the company with a huge debt load. COVID changed the nature of shopping. And ultimately, the company couldn't stick to the 99 cent price tag.

Why are dollar stores bad for the community? ›

They single out towns and cities with high concentrations of low- and fixed-income residents, particularly Black and Brown residents. They exacerbate traffic. They displace good jobs with lower-paying ones, and they often use tactics that trick shoppers into believing they are getting bargains.

What is the dark side of dollar stores? ›

Dollar store employees face low wages, long hours, and difficult working conditions. These stores have a significant impact on marginalized communities, often becoming the only source of affordable goods in food deserts.

Is Dollar General owned by China? ›

Dollar General Corporation is an American chain of discount stores headquartered in Goodlettsville, Tennessee. As of January 8, 2024, Dollar General operates 19,643 stores in the continental United States and Mexico. Dolgencorp, LLC.

Why is Dollar General being sued? ›

Dominant discount retail chain Dollar General, which operates about 19,000 stores in the U.S., is being sued for an alleged “pricing scam.” In the class action lawsuit, customers allege that Dollar General frequently tags merchandise on store floors at a lower cost than what it rings up at the register.

Why is Dollar General struggling? ›

Discount stores such as Dollar General and rival Dollar Tree (DLTR. O) , opens new tab have struggled with rising costs related to supply chain and labor amid competition from Walmart (WMT. N) , opens new tab and Chinese ecommerce platform Temu.

Why is Dollar General losing money? ›

Those overstocked shelves have led to lower profits. Its full-year net income was $1.7 billion compared to $2.4 billion in fiscal 2022. Slow sales and lower profits in 2023 are why Dollar General stock is still more than 40% below its all-time high. But its drop Thursday has more to do with its guidance for 2024.

What was the 5 and 10 cent store? ›

Woolworth Co.

on the concept of the five-and-ten (i.e., a store that sells all items in stock for 10 cents or less). Woolworth evolved into a multinational corporation with a large collection of specialty retail stores on four continents. Its headquarters were in New York City. The company was founded by Frank…

Why is everything 99 cents? ›

By advertising an item at 99 cents instead of a dollar, a store could undercut its competition and, theoretically, gain customers. This practice would not cost the store much money, and customers would feel like they were saving money.

Who is the CEO of 99 cent Store? ›

Does Walmart own Dollar Tree? ›

Dollar Tree, Inc. is not owned by Walmart. It is an independent company. It owns Dollar Tree, Dollar Bills and also a subsidiary known as Family Dollar. The parent company was once known as Only $1.00.

What is Dollar General changing their name to? ›

In an effort to cater to customers who want a more upscale shopping experience, Dollar General is opening retail locations that operate under a different brand. These stores are called pOpshelf, and they're meant to appeal to wealthier and more suburban customers.

Do dollar stores really save you money? ›

Dollar stores are not always cheaper than regular grocery stores. Don't be fooled by shrinking package sizes; calculate the price per ounce to do an accurate price comparison. Getting a sense of what items are cheaper in which store could result in some serious savings.

Why are people against dollar stores? ›

The persistence of labor violations at dollar stores indicates that though minimum wage increases across the country have made low-wage jobs better by many measures, some of America's 15 million retail jobs are still dangerous for workers.

Are dollar store products bad? ›

New Report Finds 81% of Dollar Store Products Tested Contain One or More Hazardous Chemicals Linked to Learning Disabilities, Cancer & Other Serious Illnesses, Says Campaign for Healthier Solutions.

What are the disadvantages of a weak dollar? ›

A weaker U.S. dollar buys less foreign currency than it did previously. This makes goods and services (and assets) produced in foreign countries relatively more expensive for U.S. consumers, which means that U.S. producers that compete with imports will likely sell more goods (such as American cars) to U.S. consumers.

Are items from the dollar store safe? ›

Of the 226 consumer and food products tested at Dollar Tree, Family Dollar, Dollar General, 99 Cents Only, and Five Below, 53% of the products screened in 2021 contained one or more chemicals of concern. All of the products tested were purchased in 2021.

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