Is Family Dollar dragging down Dollar Tree? Maybe.
On Wednesday, Chesapeake, Va.-based Dollar Tree announced it plans to shut down as many as 390 under-performing Family Dollar stores and renovate 1,000 other locations. Dollar Tree acquired Family Dollar in 2015 for $9 billion.
The company realizes it needs to continue to reinvent the Family Dollar business model. It revamped the Family Dollar private brand program in 2017.
“It has to do with integrating a very different concept,” Loop Capital Markets Analyst Anthony Chukumba told Digiday, a New York-based online news source in an article headlined, “Why Dollar Tree Has Struggled to Grow Family Dollar.” “[Family Dollar] was mismanaged for so long — there’s no magic bullet to fixing it; for example, their supply chain is terrible, there are a lot of out-of-stocks, and [staff] morale isn’t so good.”
Dollar Tree said the renovated Family Dollar locations will sell alcohol and include a $1 Dollar Tree merchandise section. About 400 stores will get an expanded freezer and cooler section, and it will also rebrand about 200 Family Dollar stores to the Dollar Tree brand.
Among these new initiatives, the company also plans to test the idea of multiple price points in select Family Dollar locations — straying away from its typical “everything for $1” business concept. The selected test stores will feature “high-value multi-price merchandise,” according to Dollar Tree.
"We are confident we are taking the appropriate steps to reposition our Family Dollar brand for increasing profitability as business initiatives gain traction in the back half of fiscal 2019," said Dollar Tree CEO Gary Philbin in announcing the results.
Consolidated net sales for Dollar Tree’s 13-week fourth quarter of 2018 were $6.21 billion, compared with $6.36 billion a year ago (a 14-week period). Excluding $406.6 million of sales from the extra week in the prior year’s quarter, consolidated net sales rose 4.2 percent. Same-store sales for the Family Dollar banner edged up 1.4 percent.
“Sales for the quarter were strong,” Philbin said. “Our results demonstrate the increasing strength of the Dollar Tree brand, and accelerated progress on the Family Dollar turnaround, as Family Dollar delivered its strongest quarterly same-store sales growth of the year.”