Family Dollar and Dollar Tree to close 1,000 stores in the United States

New York (CNN)- Family Dollar, the discount chain that primarily serves low-income customers in cities, announced Wednesday that it will close about 1,000 stores in the United States.

Years of mismanagement and difficult store conditions have hurt the Family Dollar brand. In fact, the Dollar Tree-owned chain was recently fined more than US$40 million over a rat infestation in a warehouse that forced the temporary closure of hundreds of stores.

Decades of inflation have hit shoppers hard, and the overall decline in consumption has hurt Family Dollar customers as well as the chain’s profits. Which increased the fight with its competitors like Dollar General, Walmart and others.

Additionally, cuts to Supplemental Nutrition Assistance Program (SNAP) benefits left many families with a deficit of up to $250 per month. Discounters and consumer goods companies say they have felt the impact of those losses.

“Persistent inflation and reduced government benefits are placing pressure on low-income consumers, who make up a large portion of Family Dollar’s customer base,” CEO Rick Dreiling said in a meeting with analysts Wednesday.

Due to lease expirations, Family Dollar will close 600 stores this year and 370 stores in the coming years. Family Dollar has approximately 8,000 stores in the United States. Dollar Tree also said it would close 30 stores when the leases expire.

Store closures will improve the company’s profitability. However, they will leave a void for Americans who already have few shopping options. Family Dollar stores are typically in areas with few supermarkets, department stores, and other retail options.

Dollar Tree shares fell more than 13% in early trading Wednesday, their lowest level so far this year.

Understaffed and poorly maintained stores

Discount retail is one of the bright spots of the industry, whose history dates back to the Great Depression, when a difficult economic situation and high unemployment rates caused Americans to take drastic measures, resulting in retailers having to lower prices to survive. Was forced to.

Years of bargain hunting led shoppers to turn to discounts rather than paying full price for products, a mentality that continues today.

So, while thousands of department stores, mall specialty stores and other retailers have closed, discount brands – from Walmart to Dollar General to TJ Maxx – continue to thrive. These companies focus on attracting the shrinking middle class and low-wage buyers looking for bargains. As many shoppers have been hit by the highest inflation in decades, discount chains have improved their standing.

But Family Dollar has missed out on these benefits.

Dollar Tree, which focuses more on middle-income suburban shoppers, acquired Family Dollar in 2015 for $8.5 billion.

It was hoped that by uniting, the combined company could expand its customer base, reduce costs, and hold its own against larger retailers such as Dollar General, which are primarily in rural areas.

But Dollar Tree has struggled to integrate Family Dollar and has closed hundreds of stores in recent years.

According to analysts, Family Dollar stores were in worse shape than Dollar Tree had expected when it acquired the business. Although Family Dollar has renovated thousands of stores in recent years, many are still in disrepair. Stores are often understaffed and checkout aisles are closed.

Robberies have long been a problem at Family Dollar, Dollar Tree, Dollar General and other discount stores, with stores operated with only a small group of employees sometimes becoming victims of violent robberies and other crimes.

Dollar Tree employees have complained about unsafe working conditions, and the Occupational Safety and Health Administration (OSHA) last year criticized the company for “continued disregard for human safety”, which “suggests that the company “Thinks that revenue matters more than people.”

Family Dollar was fined a record fine this year for violating product safety standards after selling items stored in a rat-infested warehouse filled with live, dead and rotting rodents in West Memphis.

The $41.6 million fine is “the largest criminal fine in a food safety case,” according to the Justice Department.

Last year, Dollar Tree announced it would review its entire portfolio of Family Dollar stores to identify underperforming stores.

The rise of Dollar General

While Family Dollar is struggling, rival Dollar General is growing.

Dollar General opens approximately 1,000 stores per year, making it the fastest growing retailer in the United States. The company has about 18,000 stores.

Both companies are struggling to attract many of the same low-income buyers. Despite the name, these stores primarily sell food and everyday items priced between US$1 and US$10.

But Family Dollar has lagged behind Dollar General, particularly because of pricing: Family Dollar prices can be 10% to 15% higher than Dollar General and other discount competitors. Dollar General, which is more than twice the size of Family Dollar, is able to offer lower prices because of its scale.

Shoppers have turned to Dollar General, Walmart, Target and other low-priced chains to stretch their budgets.