Has Dollar Tree gotten Family Dollar turned around?

Discussion
Photo: Getty Images
Mar 08, 2019
George Anderson

Just two months ago, Dollar Tree was being urged to sell or spin off its Family Dollar chain. The Family Dollar business, critics argued, was going nowhere. The chain’s same-store sales fell 0.4 percent for the first three quarters 0f 2018, bringing down Dollar Tree’s share price with it. With the release of Dollar Tree’s fourth quarter results, some are pointing to its plans to close or rebrand 390 Family Dollar locations as further proof the chain must go, while others now see that the business may be turning around.

Dollar Tree’s fourth quarter report shows that its namesake banner posted a 3.2 percent gain in same-store sales, while Family Dollar was up 1.4 percent, its best quarterly performance for all of 2018.

“We moved aggressively in the fourth quarter to optimize Family Dollar’s performance, including closing 84 stores and announcing plans to renovate at least 1,000 stores in 2019. The renovated stores will include new $1.00 Dollar Tree merchandise sections,” said Gary Philbin, president and CEO of Dollar Tree, in a statement.

The company also announced that it would convert around 200 Family Dollar stores to the Dollar Tree banner. It plans to permanently close 190 other Family Dollar locations.

Speaking on the retailer’s earnings call this week, the Dollar Tree CEO said the company has “taken the necessary actions to stabilize” its business since acquiring Family Dollar including paying down more than $4 billion in debt. He added that Dollar Tree is now in the position to “invest in and reposition the Family Dollar brand for future success through an acceleration of renovations, free banners and store closings.”

Renovated stores have delivered lifts in comp sales above 10 percent, according to Mr. Philbin.

“Our H2 model has better shopping adjacencies, more productive end-caps, a greater number of freezers and coolers, which allows us to offer more consumables and better serve the mid-week shopping needs of our customers,” he said (via Seeking Alpha). “Its performance has also been enhanced by the introduction of Dollar Tree $1 merchandise throughout the store.

Lower costs, the result of “indirect procurement” savings realized after the merger with Dollar Tree, have enabled Family Dollar to invest in lower prices and add staff to improve the shopping experience in stores, he said.

DISCUSSION QUESTIONS: Do you think Dollar Tree has figured out how to get its Family Dollar business turned around? Do you see merit in selling the chain now that Family Dollar has begun to show some encouraging signs?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"If they continue with the strategy they’ve detailed – rationalizing some stores, renovating others – I think they can successfully keep both brands."
"Dollar Tree has figured out a path that may lead to a turnaround of the Family Dollar unit. The combination of steps taken have shown improved results."
"Selling Family Dollar is a pipe dream. There is nothing to sell. Dollar Tree will pick off the best locations, cross their fingers and hope for the best."

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9 Comments on "Has Dollar Tree gotten Family Dollar turned around?"


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Mark Ryski
BrainTrust

Clearly Dollar Tree management knows how to do successful discount retailing – the steps they’re taking regarding Family Dollar appear decisive and correct. I think management is on the right track by pruning the underperforming stores and fixing the remaining Family Dollar stores. And notwithstanding the drag on results Dollar Tree was seeing, selling the chain now seems premature.

Neil Saunders
BrainTrust

Both Dollar General and Dollar Tree did battle over the acquisition of Family Dollar and it is now clear that Dollar General’s loss was a blessing in disguise. While Dollar Tree has been able to extract some savings from the Family Dollar business, it has not been able to refine and streamline the proposition. Many stores are in the wrong locations, most are not up to scratch in terms of the product mix or ambiance, and competition from other low-price rivals is increasing. In other words, a lot of work is needed to turn this around.

Now that Dollar Tree has finally recognized this there is a chance that the division can be turned around. In particular, the new format seems to work well in driving higher sales. However, this turnaround will come at a cost – a cost on top of the already high acquisition costs. That’s why many question the value of the deal.

David Weinand
BrainTrust

The most encouraging data point in this story is that Dollar Tree has paid down $4 billion in debt. As we’ve seen over and over again, too much debt is an anchor that few retailers can get out from under from. If they continue with the strategy they’ve detailed – rationalizing some stores, renovating others – I think they can successfully keep both brands.

Tom Dougherty
BrainTrust

Absolutely. A lesson to be learned by all retailers. Refresh. Rehab. Rebrand. It’s how change is managed.

Gene Detroyer
BrainTrust

Sure they have figured it out. Get rid of Family Dollar. Close 390 more Family Dollar stores, re-brand about 200 and write off $2.7 billion. The faster Family Dollar disappears the happier management will be.

Selling Family Dollar is a pipe dream. There is nothing to sell. Dollar Tree will pick off the best locations, cross their fingers and hope for the best.

Steve Montgomery
BrainTrust

Dollar Tree has figured out a path that may lead to a turnaround of the Family Dollar unit. The combination of steps taken have shown improved results. The bigger questions are can the early results be duplicated across their network and if they do will it result in the evaluation of its Family Dollar stores even approaching what they paid for them.

Rich Duprey
Guest
Starboard Value had the right idea: sell off the whole thing and be done with it. The acquisition was a mistake and shouldn’t have been done to begin with. A quarter doesn’t a trend make, as FDO has had a number of quarters since the acquisition where comps were positive. Operationally, the business continues to falter and Dollar General dodged a bullet by losing out to Dollar Tree. The disparity between Family Dollar and Dollar General only widens. With CEO Gary Philbin at the helm, though, the hard decisions won’t be made because he was Family Dollar’s CEO before the acquisition. It was one of the reasons FDO chose Dollar Tree over Dollar General, because Dollar Tree promised to keep existing management on, the same management that failed to make Family Dollar into a sound discount chain. I think Starboard Value’s other recommendation to raise prices is also smart. It doesn’t have to go the Family Dollar/Dollar General route, but increasing the price points another dollar gives Dollar Tree a lot more leeway in product… Read more »
Richard J. George, Ph.D.
BrainTrust

Dollar Tree management should receive kudos for its patience with resolving the Family Dollar situation. Given the struggles Family Dollar has encountered, a wholesale sale would have been at a wholesale price. Its current “weed, feed & rebranding” seems to make sense.

Some will argue that all remaining Family Dollar stores should be rebranded as Dollar Tree stores. However, if Family Dollar has a customer base that is different from the other dollar stores & if this target market perceives Family Dollar as having a distinctive differential advantage (?), then keeping it in play makes sense.

Craig Sundstrom
Guest

To the outside observer which, admittedly includes moi, there are two questions:

(1) does Family Dollar underperform because of reasons that are impossible to reverse, such as bad locations? Presumably Dollar Tree thought the answer is no (or at least there are enough good ones to make the purchase worthwhile).

(2) Does the country really need three “dollar store” chains (I’ll skip the question of whether we need any)? Why they don’t simply rebrand all the stores is an obvious question.

Beyond that and in answer to George’s actual question(s): no, I don’t think being in distant third … just not as much as before constitutes a “turnaround.” But if some one is stupid enough to want to buy it, then by all means they should sell it.

wpDiscuz
Braintrust
"If they continue with the strategy they’ve detailed – rationalizing some stores, renovating others – I think they can successfully keep both brands."
"Dollar Tree has figured out a path that may lead to a turnaround of the Family Dollar unit. The combination of steps taken have shown improved results."
"Selling Family Dollar is a pipe dream. There is nothing to sell. Dollar Tree will pick off the best locations, cross their fingers and hope for the best."

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