The Family Dollar chain, owned by Dollar Tree is facing the closing of more than 1,000 stores. The discount chain that has historically catered to low-income customers in urban areas has been hit hard by the inflation in recent years as well as the stiff competition from Dollar General, Walmart (expanding this year) and other similar retailers.
Family Dollar faces consequences for major mismanagement
Internal mismanagement has compounded the problem, and the chain has recently been fined more than $40 million because of a rat infestation in one of its warehouses. This infestation not only temporarily halted business in multiple stores where merchandise had been shipped, but also demanded a review of the entire distribution chain adding to the loss in revenue. “The largest-ever monetary criminal penalty in a food safety case,” the Justice Department said.
Still, the company pinpoints the rise in costs of living as well as the reduction in benefits for the Supplemental Nutrition Assistance Program, or SNAP as the major cause for the loss of customers, who have seen their financial aid reduced by up to $250 per month and can no longer afford any frivolous spending, economical as it may be.
“Persistent inflation and reduced government benefits continue to pressure the lower-income consumers that comprise a sizable portion of Family Dollar’s customer base”, CEO Rick Dreiling said in a statement on Wednesday.
Family Dollar, currently boasting around 8,000 US stores will close 600 locations this year alone and will continue with another 370 over time as leases expire on their locations. Its parent company, Dollar Tree, will also close some 30 additional shops when current leases end. These location shutdowns will help boost the company’s profit margins by eliminating underperforming stores, but it will create an even more expansive food dessert for many American families already living in underserved areas with limited retail and food options.
Understaffed and hazardous stores
The bargain hunt has been a staple in American families since the Great Recession when it became a necessity for survival. The trend has continued to this day, with a discount search mentality that still appeals to the masses. This has forced many retailers to close their doors, but discount companies found their demographic expanding as the middle class shrunk and shoppers once again searched for the lowest prices.
In an effort to stave competition, reduce costs and grow its customer base, Dollar Tree, a middle-income focused store, bought Family Dollar in 2015 for $8.5 billion. The move turned out not to be profitable for the discount giant, as stores were in worse condition than expected, understaffed and badly maintained. Efforts to renovate the premises have failed to improve many locations and solve issues external to the company such as the discount stores’ propensity to be victims of crimes.
Employees in Dollar Tree stores have often complained about poor working conditions, with OSHA chiming in last year with criticisms of a “continued disregard for human safety” that “suggests the company thinks profits matter more than people.”
Dollar General continues to expand
Despite the aforementioned issues being quite common in discount stores, Dollar General, Dollar Tree and Family Dollar direct competitor, is doing quite well, with more than 18,000 stores in the US and having opened about 1,000 stores a year.
Both stores’ demographics are the same and shoppers have become partial to the lower prices Dollar General can afford to offer because of the company’s scale. Serving mostly food and household items between $1 and $10, every cent counts when it comes to stretching the family budget. The 10 to 15% difference in pricing has helped Dollar General stay on top with their lower price tags and newer stores enticing customers.
This has forced Dollar Tree to review their Family Dollar stores and shut down locations.
