Family Dollar Reconsiders Its Course
Though the recession is increasingly hoped to be a fading horror, American retailing is still far from a picture of total health. While unemployment and hiring statistics seem to be on the upswing and building has shown considerable growth despite occasional negative indicators, retailing statistics from the most recent holiday season were notably disappointing. To this, many retailers are essentially shrinking at least parts of their brick and mortar platforms.
Many prominent retailers continue to produce plans which fundamentally cut back on typical recent annual expansions. Late last summer Family Dollar announced plans to open 500 new locations for the then coming fiscal year. This as the company was anticipating the grand opening of its 8,000th store, from the base of its fiscal year ending count of 7,916 as of August 31, 2013. That 8,000th opening actually took place less than six weeks later in October.
Obviously, there are few retailers that have the vision, much less the need, to open 84 new locations in less than a month and a half, especially with the effects of the recession lingering on. However, this rate of expansion was merely par for the course for Family Dollar in recent years.
During the decade before the recession, Family Dollar embarked on a program of major in-store investments in renovations by installing refrigerators and freezers throughout its considerable universe of stores. The company was announcing its intent to be a player in the grocery market by establishing itself as a dealer in perishables while expanding its overall merchandising in food.
The company saw this as a means to capture market share from struggling traditional grocers, while increasing the frequency of customer visits as well as the average amount of money they left behind per visit. On this quest, Family Dollar was not alone. Its nationwide dollar retailer brethren, Dollar General and Dollar Tree, pursued the same destiny.
According to Chain Store Guide’s database of Discount Stores & Specialty Retailers, during the years leading to the recession, Family Dollar aggressively opened new locations at the rate of around 400 per year. That slowed down in fiscal 2007, just before the recession officially hit, to 130. The next year that growth figure was announced to be 170 as the recession became official.
For fiscal 2009, Family Dollar netted just 55 new locations. This however was quite a solid number as most of retailing was suffering an economy that had taken a stunning turn for the much worse. Most chains were significantly cutting expansion plans, if not contracting their store counts significantly.
Then the three major, national dollar chains embarked on patterns of expansion that would have seemed bold in times of abundant prosperity. For its part, Family Dollar grew with 130 additional locations for fiscal 2010. During the next year the company added 386 locations. Then Family Dollar expanded by 271 followed by meeting a whopping growth plan by adding 474 locations by the summer of 2013. This lead to the company’s plan to add 500 locations for the current year, as it quickly passed its 8,000th location milestone.
Suddenly, as most retailers anticipated a kind of post-recession holiday season, Family Dollar began to experience disappointing quarterly financials. This quickly led to the stunning dismissal of its COO Mike Bloom. The departure was accompanied by stories of significant changes in the company’s merchandising plans.
However, shortly after this, came even more shocking company news. Just last month, the industry’s perennial number two dollar retailer, announced the decision to close 370 ‘underperforming’ stores. Accompanying this grim news was the announcement that the company would scale back its plan to open 500 stores during fiscal 2015. The company now anticipates opening between ‘just’ 350 and 400 locations next year. Here it must be noted that these revisions are still pretty bold numbers for any company at any time.
Certainly, any company founded more than half a century ago, operating well over 8,000 locations and expecting to add 500 locations in the current year, can be expected to see a few of its locations in the underperforming column. 370 closures represent just under 4.6 percent of the company’s retail locations. Still the number caught most of the retailing community mightily by surprise.
The question now is, is this just a glitch in the future of a retailer which has done so incredibly well, while expanding so rapidly and intelligently, during one of the worst economic disasters of our country’s history? Or, is this an indicator, for at least the near future, of significant trouble and turmoil? Are the other dominant, rapidly growing dollar stores likely to follow Family Dollar’s troubled lead?