What Dollar Tree’s 1,000-Door Closures Say About Low-Income Consumers

Vicki M. Young
·4 min read
2

Some consumers are trading down, and others are spending less.

Dollar Tree Inc.’s low-income customers at its Family Dollar Stores are shopping less. In contrast, the retailer is also seeing an increase in households with annual income of over $125,000 at its Dollar Tree banner.

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The dollar store retailer has always had issues integrating its Family Dollar banner, and now its closing 970 of those locations. Four-hundred doors will close in the first-half of 2024, with the remaining 370 due to shutter over the next several years as leases expire. The company also plans to shut 30 Dollar Tree stores as leases expire over the next several years. The company closed on its $8.5 billion transaction for Family Dollar in 2015.

In contrast, Dollar Tree also opened 219 new stores in the quarter, bringing its total store openings to 641 for 2023.

Rick Dreiling, chairman and CEO, told analysts during a conference call Tuesday on fourth-quarter earnings that Dollar Tree is taking “decisive steps to strengthen” the Family Dollar brand.

“We took a thoughtful and deliberate approach to address underperforming stores by considering each individual store’s performance, local operating environment, and our broader need for scale and operating efficiencies across the portfolio,” he said adding that the estimated “net sales loss from the stores we intend to close this year is approximately $730 million on an annual run rate basis.”

How bad was it at Family Dollar? Dreiling said that while consumables comp decelerated sequentially to 2.2 percent in the fourth quarter from 6.2 percent in quarter three, “discretionary comp was down a full 12 percent.” The banner posted a fourth-quarter same-store sales decline of 1.2 percent. Despite the sizable decline, he said that still reflected a “slight sequential improvement over quarter three. Categories like apparel, home décor, electronics, and general merchandise remain weak as lower-income consumers continue to be very deliberate about their spending.”

The Family Dollar banner has a higher lower-income base that’s been hurt by persistent inflation and reduced government benefits. The 1.2 percent decline in its same-store sales comp was driven by a 0.7 percent rise in traffic and offset by a 2.0 percent drop in average ticket, the amount spent per customer in the store.

That’s in contrast to the Dollar Tree nameplate, where its same-store sales comp rose 6.3 percent, driven by a 7.1 percent increase in traffic and offset by a 0.7 percent decline in average ticket. Dreiling said the Dollar Tree banner’s consumable comp was up 10.8 percent in the quarter, while the discretionary comp was up 3.1 percent. The banner added 3.4 million new customers in 2023, mostly from households earnings over $125,000 a year.

Dollar Tree has had to increase prices, and now has $3 and $5 center-store merchandise available at 5,000 Dollar Tree stores, as well as $3, $4 and $5 frozen and refrigerated items at more than 6,500 doors carrying the Dollar Tree banner. Dreiling said the business will expand its multi-price assortment by over 300 items at price points between $1.50 to $7, although the “vast majority of items sold in Dollar Tree stores will remain at our entry-level fixed price point.”

Dreiling also told analysts during the call that the company is still in the early stages of its transformation and made “meaningful progress” at its core business. He joined the company in January 2023 and is the former CEO at the company’s chief competitor Dollar General Corp. from 2008 to 2015, and was its chairman from 2008 to 2016.

For the fourth quarter, the company posted a net loss of $1.71 billion, or $7.85 a diluted share, against net income of $452.2 million, or $2.05, a year ago. Net sales climbed 11.9 percent to $8.63 billion from $7.72 billion a year ago. Consolidated same-store sales rose 3 percent, beating Wall Street’s consensus expectations of 2.8 percent, but most of those gains were from its Dollar Tree banner.

For the year, the net loss was $998.4 million, or $4.55 a diluted share, against net income of $1.62 billion, or $7.24, in 2022. Net sales gained 8 percent to $30.58 billion from $28.32 billion in 2022.

Separately, Family Dollar Stores agreed to pay a fine of $41.6 million this year for violating product safety standards in a plea agreement with the U.S. Department of Justice. The criminal fine was for selling goods in an Arkansas warehouse—that included food—infested with live, dead and even decaying rats.