Ross Taylor/AP
Years of mismanagement and poor store conditions have hurt Family Dollar's brand.
New York
CNN
—
Family Dollar, a struggling discount chain that serves low-income customers mostly in cities, said Wednesday it would close nearly 1,000 stores.
Years of mismanagement and poor store conditions have hurt Family Dollar's brand. Family Dollar, which owns Dollar Tree, was recently fined more than $40 million for a rat infestation in a warehouse that forced the temporary closure of hundreds of stores.
Decades of high inflation have hit shoppers hard A common consumer withdrawal Family Dollar has hurt customers and the chain's profits, intensifying its battle with Dollar General, Walmart and other discount rivals.
In addition, families are struggling because benefits for the Supplemental Nutrition Assistance Program, or SNAP, have been cut $250 down per month. Discount stores and consumer goods companies say they are feeling the impact of the loss.
“Continued inflation and reduced government incentives continue to put pressure on low-income consumers, who comprise a significant portion of the household dollar,” CEO Rick Drieling said on a call with analysts on Wednesday.
Family Dollar will close 600 locations this year and 370 stores over the next few years as store leases expire. Family Dollar has about 8,000 U.S. stores. Dollar Tree also said it will close 30 stores as leases expire.
The closure will improve the company's profitability. But they leave a void for Americans with already limited shopping choices. Family Dollar stores are often located in areas with few supermarkets, big box stores and other retail options.
Shares of Dollar Tree fell more than 13% to their lowest level of the year in early trading on Wednesday.
06:07 – Source: CNN Business
Dollar General's business is booming. And police say it's a risk of getting involved in crime
Understaffed and dangerous stores
The discount retail industry has been one of the industry's bright spots since the Great Depression, when an economic downturn and high unemployment gripped Americans, forcing retailers to cut prices to survive.
Years of bargain hunters conditioned themselves to look for discounts instead of paying full price, a mentality that persists to this day.
So, while thousands of department stores, specialty stores in malls and other retailers have closed, discount companies from Walmart to Dollar General to TJ Maxx have sprung up. These companies focus on appealing to middle-class and low-wage buyers looking for lower prices. Discount chains have improved their position as many shoppers have been squeezed by the highest inflation in decades.
But the family dollar failed.
Dollar Tree, which focuses more on middle-income shoppers in the suburbs, bought Family Dollar in 2015 for $8.5 billion.
The combined company hopes that by joining forces, it can grow its customer base, cut costs and fend off big retailers like Dollar General, mainly in rural areas.
But Dollar Tree has struggled to consolidate Family Dollar and has closed hundreds of stores in recent years.
Dollar Tree was in worse shape than expected when Family Dollar Stores bought the business, analysts say. Although Family Dollar has renovated thousands of stores in recent years, many stores are still poorly maintained. Stores are often understaffed and boxes clog the aisles.
Family Dollar, Dollar Tree, Dollar General and other discount stores have had chronic theft problems, sometimes operating stores with few employees affected. Violent robberies and other crimes.
Dollar Tree employees have complained about unsafe working conditions, and OSHA criticized the company last year for its “consistent disregard for human safety,” suggesting that the company “sees that profits are more important than people.”
Family Dollar was hit with record fines this year for violating product safety standards after selling products filled with live, dead and decaying rodents at a rat-infested warehouse in West Memphis.
The Justice Department said the $41.6 million fine was “the largest monetary criminal penalty ever in a food safety case.”
Last year, Dollar Tree announced a review of its entire portfolio of Family Dollar stores.
As Family Dollar struggled, rival Dollar General gained momentum.
Dollar General has opened about 1,000 stores a year, making it the fastest-growing retailer in the United States. The company has around 18,000 stores.
Companies are fighting for many of the same low-income shoppers. Despite the name, these stores mostly sell food and everyday items between $1 and $10.
But Family Dollar has lost ground to Dollar General, particularly because of prices: Family Dollar's prices can be 10% to 15% higher than Dollar General and other discount competitors. Dollar General, which is twice as large as Family Dollar, can offer lower prices because of its size.
Shoppers have turned to Dollar General, Walmart, Target and other discount chains to stretch their budgets.
