Family Dollar to close stores and lower prices
Family Dollar plans to close 370 stores, cut back on opening new locations and lower prices on about 1,000 items. The efforts are designed to save $45 million annually while helping to put the chain in a more competitive position.
The nation’s second largest dollar store chain made its plans public following a fiscal second quarter in which sales fell 6.1 percent.
"We are not satisfied with our results, and we hold ourselves accountable for improving our performance," said Howard Levine, chairman and CEO of Family Dollar, in a statement.
In addition to store closings, which represent about five percent of the chain’s total, Family Dollar announced it would open between 350 and 400 new stores in its fiscal 2015, down from the 525 in its 2014 fiscal year.
"Our mission is to deliver compelling, everyday values for our customers, and executing on this promise requires an unwavering commitment to being a low-cost operator. We are taking a number of important steps through our immediate strategic actions to improve our operational efficiency and deliver better financial returns," said Mr. Levine.
Brian Yarbrough, an analyst with Edward Jones, told the Charlotte Observer that sales per square foot at Family Dollar were $180, compared with $210 at rival Dollar General.
Analysts at Bloomberg News estimate that revenues at the chain will increase 1.7 percent this fiscal year compared to 11 percent last year.
Discussion Questions
What do you see as the biggest challenge facing Family Dollar as it moves ahead? Will the steps being taken by Family Dollar make it more competitive and help to close the gap with Dollar General and others?
The biggest challenges now and in the future for retail chains like Family Dollar, Dollar General, and others, are that when price alone drives the fate of the business, the consumer has too many other alternatives online, or even still with a wide choice of other price-driven retail stores, in which to shop.
Too many stores and too many competitors in this category are the two biggest challenges facing Family Dollar. There are over 30,000 stores in this space, nearly as many as the major grocery stores and that is just too many for these companies to do well. Sorry, but closing just about 5% is not enough to help them compete with good profits.
The multiplication of dollar-type retail stores and the challenge to generate greater sales per square foot as its prime source of future profits are big challenges for Family Dollar as it moves ahead.
Despite Family Dollar’s stated mission “to deliver compelling, everyday values for our customers, and executing on this promise requires an unwavering commitment to being a low-cost operator,” the jury is still dubious. If that Family Dollar mission wasn’t delivered before the announcing of its new approach, what evidence is there that Family Dollar will fulfill its mission in the future?
Credit goes to Family Dollar for trying moving aggressively to right the ship early on before it goes aground. Sadly, though, there needs to be a more compelling reason to shop at Family Dollar than price alone. That positioning is too crowded nowadays with competitors.
Family Dollar is dealing with two problems:
1. It and other dollar stores will lose their convenience (and therefore price) advantage as Walmart opens small formats that (will soon be) tethered to supercenters and linked to the endless aisles of Walmart.com. Every small format Walmart store will have the potential to facilitate sales that far exceed the inventory in each location, not to mention the format-flexing options of fuel, pharmacy, etc.
2. Unlike Walmart, Family Dollar is sitting on the omni-channel sidelines, rendering its massive physical scale a liability rather than an asset. This isn’t about determining whether the majority of Family Dollar customers are currently online shoppers, it is about preparing for that inevitability and potentially capturing new customers in the process. It’s probably too late and too resource-draining for FD to make a concerted push into e-comm at this point but it makes sense for them to forge partnerships with digital pure-play platforms and/or brands that would be interested in leveraging Family Dollar’s scale in the U.S. After all, even Amazon and Alibaba are investing in bricks-based possibilities.
Sometimes the sheer weight of numbers (of locations) becomes too overwhelming. That seems to be one of the problems facing Family Dollar. RadioShack is a good example of too many locations producing too little volume.
The proliferation of the discount store format makes them a commodity. Closing stores to save money is a short-term solution, and while it might make the numbers more attractive, it is not a competitive move.
Family Dollar needs to differentiate itself from the discount commodity retailer if it wants to survive.
Where is Waldo shopping tomorrow? Family Dollar, Dollar General, Dollar Tree, Big Lots, 99 cent only, Walgreens, CVS, Rite Aid, Kmart, Walmart, Target, Kroger, et al? Where is the cheapest soda and detergent next week?
A real issue I’ve been seeing with all the low-price stores is the issue of too few employees. There is too much work to be done with the number of hands available. This translates to sloppy, dirty stores that contain empty shelves along with little to no customer service and brutally undervalued, overworked staff. Price is certainly a motivator for customers on a tight budget, but many will spend a little more for a more pleasant atmosphere in which to shop. I know I do.