Dollar Tree Inc. will close hundreds of its Family Dollar stores this year and rebrand hundreds of others as part of an effort to turn around lagging sales results at the chain it acquired in 2015 for approximately $9 billion. But the discount retailer is also making some changes in stores that could heat up competition with food and convenience stores.
As of Feb. 2, Chesapeake, Va.-based Dollar Tree operated 15,237 stores in 48 states and five Canadian provinces, approximately 8,200 under the Family Dollar brand and about 7,000 under the Dollar Tree and Dollar Tree Canada brands.
“We plan to close as many as 390 Family Dollar stores this year,” said Gary Philbin, president and CEO of Dollar Tree, on the company’s fourth-quarter and fiscal-year 2018 earnings call March 6. “We also plan to rebanner approximately 200 Family Dollar stores to Dollar Tree stores this year, opening 350 new Dollar Trees and 200 new Family Dollars.”
The company also will renovate at least 1,000 Family Dollar stores in 2019. It is rolling out a new model for both new and renovated Family Dollar stores known internally as H2. This model has significantly improved merchandise offerings, including Dollar Tree's $1 merchandise throughout the store. It has produced increased traffic and provided an average comparable-store sales lift of more than 10% over control stores, the company said. H2 performs well in a variety of locations, especially ones where Family Dollar has in the past been the most challenged, it said.
The company also plans to add adult beverages in approximately 1,000 stores and expand freezers and coolers in about 400 stores.
“Since the Family Dollar acquisition, we have taken the necessary actions to stabilize the business, capture synergies in both brands, rebuild the leadership team, introduce and develop the shared services infrastructure, integrate system, create smart ways for our customers to save, improve on store standards, invest in labor and price and, importantly, to repay more than $4 billion worth of debt,” Philbin said. “We are now at the stage to be able to invest in and reposition the Family Dollar brand for future success through an acceleration of renovations, rebanners and store closings.”
Philbin also said its Dollar Tree banner would test multiple price points. He said that while the company will “protect the brand,” it is “open to good ideas that work.” It believes that the Dollar Tree banner “has one of the most unique, differentiated and defensible brand concepts in all of value retail. The $1 fixed price point has been a critical element of Dollar Tree’s success, generating deep customer loyalty and strong historical performance. While the company will not undermine this important value proposition for customers, testing new initiatives is an essential component of the company’s ability to evolve and provide the best customer experience, including multi-price point testing, which has been done on prior occasions.”
The net loss for Dollar Tree’s 13-week fourth-quarter fiscal 2018 was $2.31 billion, compared with net income of $1.04 billion in its 14-week fourth-quarter fiscal 2017. Consolidated net sales were $6.21 billion, compared to $6.36 billion. Gross profit was $1.91 billion, compared to $2.10 billion. Operating loss was $2.15 billion compared with operating income of $765.6 million. Same-store sales for the Dollar Tree banner increased 3.2%, and same-store sales for the Family Dollar banner increased 1.4%.
“Sales for the fourth quarter were strong for both banners. Our results demonstrate the increasing strength of the Dollar Tree brand and accelerated progress on the Family Dollar turnaround,” said Philbin. “We are confident we are taking the appropriate steps to reposition our Family Dollar brand for increasing profitability.”
A version of this story was published previously on CSP Daily News, a WGB sister site.