Evidently there are people who think it would be a good idea for Walmart to throw its hat into an already crowded ring of parties looking to acquire Family Dollar. I come to this conclusion after responding to emails and being interviewed by a media outlet on the topic. Earlier this year, Credit Suisse analyst Michael Exstein floated the same idea.
As I understand the reasoning, Walmart would try to acquire Family Dollar because it could provide the retailer with a rapid ramp-up of its small store expansion plans while taking out a competitor that is currently cutting into its own share of market, particularly among low income consumers. Mr. Extstein also made the case that a Walmart acquisition of Family Dollar would get Federal Trade Commission approval because only 19 percent of Walmart's stores are within a mile of a Family Dollar.
As to why Walmart would be making a big mistake if it entered into the bidding for Family Dollar, there are a number of reasons. The biggest is that Walmart continues to struggle in the U.S. and needs to keep its focus on fixing its own issues before taking on those of another chain. Same-store sales at Walmart's stores in the U.S. were flat in the most recent quarter following declines in the five quarters that preceded it. Customer traffic has fallen for seven straight quarters.
The chain that acquires Family Dollar will be taking on its problems, and there are plenty. In the third quarter, Family Dollar's same-store sales dropped 1.8 percent. That followed a 3.8 same-store sales decrease in the second quarter and a 2.8 percent drop in the first quarter. Earlier this year, Family Dollar announced it would close 370 underperforming stores and slow its new store openings in 2015.
If Walmart is looking to acquire a dollar store chain, the one it should consider is Dollar General. Clearly the number one player in the dollar store channel, Dollar General recently reported same-store sales growth of 2.1 percent in its second quarter. The chain has grown both customer traffic and the average tickets at its stores for 26 consecutive quarters.
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