The American dollar store has fallen on hard times

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A Family Dollar Stores Inc. store in Hyattsville, Maryland, US, on Wednesday, March 13, 2024. Dollar Tree Inc. expects to close about 600 Family Dollar stores in the first half of fiscal 2024 and shut down an additional 370 Family Dollar and 30 Dollar Tree locations as their leases expire. Ruth Colvin-Graves, 76, of Columbus, Ohio, used to make Family Dollar her go-to destination for snacks, paper towels, and cleaning products. "These were all things that I wouldn't have to choose between feeding me and my son or keeping a roof over our heads," Graves said. Like many customers, the discounts and convenience enticed her. But now, she says, she stays away from all dollar stores. "They lost their focus on who exactly their customer base was," Colvin-Graves said. She says prices have increased, expired goods are on shelves, there are chronic staff shortages, and an unpleasant shopping experience. "On any given day, you had to maneuver around boxes in aisles, and items were not placed where they should be," Colvin-Graves says. She isn't alone in her shift in attitude about dollar stores. Ellen Forroux of Medford, Oregon, finds herself running into Walmart, which is sprawling in size and less conveniently located, instead of the smaller format neighborhood dollar stores she used to frequent. Forroux is disabled and lives off her Social Security income, so stretching dollars and avoiding big box stores is important to her. "I really depend on Dollar Tree," Forroux says. And dollar stores like Dollar Tree depend on customers like Forroux. However, Family Dollar recently announced that it shuttered 1,000 stores, and the Los Angeles-based 99-cent Only chain filed for bankruptcy — though there is an investor-led attempt to save the store brand underway. These events point to problems in the sector that have been turning off customers like Graves and Forroux. Even Dollar General is not immune to problems. It's growing sales, but slower than previous projections, and over the past year, its shares are down over 30%. What's causing store closures A convergence of competition and customer factors are causing turbulence in the sector, according to William & Mary business professor John Strong, who studies dollar stores. The 99 Cents Only chain, with 371 stores primarily in the West, needed — but lacked — the scale and capability to counter far larger rival Dollar General, which began rapidly expanding into its core market. Meanwhile, the Family Dollar closures represent the continuing fallout from Dollar Tree's purchase of the discount chain a decade ago. Strong said that Dollar Tree and Family Dollar are two very different stores with vastly different customer bases, and trying to merge them has proven challenging. "Dollar General and Family Dollar are neighborhood consumable stores, while Dollar Tree is a modern version of the old-fashioned variety stores," Strong said. Dollar General and Family Dollar have an 80 percent consumable merchandise mix: food, cleaning supplies, and healthcare. Dollar Tree sells more seasonal and impulse buys in more affluent suburban strip malls: wrapping paper, gift items, and toys. While Dollar General caters to a primarily rural clientele, Family Dollar stores are generally in urban areas. Family Dollar, Strong said, has never been able to gain the following of its larger rival. "Family Dollar was never as good a business as Dollar General," Strong said, citing revenue numbers. Family Dollar is roughly $15 billion in annual revenue, while Dollar General is $39 billion. Dollar General generates $275 per square foot compared to $225 at Family Dollar. Dollar Tree — which itself does close to $17 billion in revenue — has invested hundreds of millions in Family Dollar since purchasing it, trying to counter the effects of its worse locations and more unkempt stores, but it has not been enough. "Family Dollar has always been the weak child of the sector," Strong said, and closing stores is an attempt by Dollar Tree to strengthen it. While 1,000 stores are shuttering, Dollar Tree is also opening 219 new stores this year, a blend of Dollar Tree and Family Dollar, so there is still at least some room for growth, he added. The weakness, however, is being increasingly exploited by competitors, adding that a reinvigorated Walmart has been closing the vise on dollar stores with its supermarket growth. Aldi has also become a serious player in small towns, and the value retailing space in general is much more competitive now than it was a decade ago. Strong says that Dollar General has been conducting many experiments and trials. There are larger-format Dollar General stores, food-focus stores branded as Dollar General Market, and a Popshelf, a new concept store focusing on items that rival Dollar Tree is better known for (think wrapping paper and party favors). Some stores even sell gas.