Is a dollar store price war coming?
For the majority of regular dollar store shoppers, the appeal is largely about price. So what else can a chain that has lost market share in the discount space do but lower its prices? That appears to be the scenario set up for Family Dollar as the company awaits the closing of its merger with Dollar Tree.
According to analysts at Sterne Agee, via The Charlotte Observer, in a comparison of 42 items purchased at Dollar General, Family Dollar and Walmart, the Family Dollar basket came to $151 compared to $150 for Dollar General and $149 for Walmart. Family Dollar’s prices have been higher than its main competitors for several years, according to the research.
"Clearly, going forward, once the Dollar Tree merger closes in early July, we would expect to see more aggressive price action out of (Family Dollar) and will be monitoring this closely," wrote the Sterne Agee analysts.
Source: Family Dollar
While lower pricing may be coming, it may take more than that to reinvigorate Family Dollar’s business. In April 2014, Family Dollar announced it was cutting prices on about 1,000 items in an effort to become more competitive following a quarter in which the chain’s sales fell about six percent.
Since then the company has seen some improvement, but has continued to lose ground to stronger competitors within and outside of the dollar channel. When the company reported its second quarter financials this past April, overall sales were up three percent while comparable store sales were up just 0.5 percent. Family Dollar reported trips to its stores were up, but average rings were down.
- Analysts: Dollar Tree deal could bring lower prices to Family Dollar – The Charlotte Observer
- Dollar Tree-Family Dollar merger inches toward July closing – Charlotte Business Journal
- Family Dollar Reports Second Quarter Financial Results – Family Dollar Stores, Inc.
- Family Dollar to close stores and lower prices – RetailWire
- Will Dollar Tree + Family Dollar spell trouble for Dollar General? – RetailWire
Do you expect to see Family Dollar lower its prices following the completion of the merger with Dollar Tree? Will the company have the resources post-merger to stick with the strategy if competitors, including Dollar General and Walmart, do the same?