Family Dollar is one of the largest dollar store chains in the U.S., but it's not the most successful. A subsidiary of Dollar Tree, Family Dollar has roughly 8,000 stores nationwide and is in direct competition with the ever-expanding Dollar General, per CNN Business. Due to its often higher prices in stores, the discount chain has been struggling to keep up with its rivals. Now, executive are taking initiative and amending this pricing model, while simultaneously revamping the struggling stores. Read on to find out how Family Dollar is slashing prices to save itself.
READ THIS NEXT: Family Dollar and Another Discount Chain Are Closing Stores.
Dollar stores have only become more popular.
ZikG / ShutterstockInflation is plaguing every sector of the economy, driving consumers to pull back on discretionary spending and seek out retailers that aren't going to overcharge for necessities.
According to The New York Times, dollar stores understand this tendency, which is why they have a business model designed to weather all storms. These stores are situated in small or rural areas, where they can offer lower prices than surrounding nearby retailers—and still profit when money is tight.
“The consumer is trying to make ends meet, and when you have limited funds in your wallet, the dollar stores provide the ability to do that,” Joseph Feldman, a senior analyst at Telsey Advisory Group, told The New York Times in August.
Illustrating this, on a recent earnings call, Dollar General execs stated that stores are seeing success via a new set of customers, with annual household incomes totaling nearly $100,000. As for Dollar Tree, the company exceeded Wall Street expectations in the third quarter, per the Associated Press.
Family Dollar is a part of Dollar Tree's success, but according to a recent earnings call, the company prefers to look at Dollar Tree and Family Dollar as "really two growth companies" that benefit from different strategies. This might be due to the fact that Family Dollar has typically been less profitable—but Dollar Tree Inc. expects a better performance from its subsidiary from here on out.
Family Dollar has historically had higher prices than competitors.
ShutterstockWhile Dollar Tree's price point is pretty consistent at $1.25—upped in late 2021 from its standard $1—Dollar General and Family Dollar sell items for anywhere between $1 and $10, CNN Business reports. But within that low range, Family Dollar's prices are generally 10 to 15 percent higher than those found at Dollar General, as well as other discount stores. That difference has hurt Family Dollar's profitability, as consumers are likely to go elsewhere if they know they can find a better price.
But Rick Dreiling, executive chairman of Dollar Tree Inc., said that Family Dollar now has lower prices "on parity," or equivalent to competitors. The announcement came during a Nov. 22 earnings call, with Mike Witynski, president and CEO of Dollar Tree, Inc., confirming that "from a pricing perspective, [Family Dollar] is in the best position in more than a decade."
The announcement of lower prices was first made during an Aug. 25 earnings call, when Witynski said that prices would be lowered at Family Dollar to allow for more "competitive pricing" that would "enhance our sales productivity and profitability, and ultimately our opportunity to accelerate store growth."
The strategy is already working.
Simon Kadula / ShutterstockExecutives haven't been clear on exact numbers for price changes, but analysts say they've gone down roughly 5 percent on average since the August announcement, per CNN Business. A Dollar Tree Inc. spokesperson also noted that prices can vary depending on the product, but nevertheless, the strategy has apparently been effective.
"Customers are recognizing this commitment to value, which contributed to a 4 percent comp sales increase and the segment's first quarterly traffic increase in three years," Dreiling said on the Nov. 22 call.
Michael Montani, retail analyst at Evercore ISI, said that the price cuts are "a logical move." What will really be important is where the company goes from here and whether "they build on that momentum," he told CNN Business.
Witynski stated on the earnings call that the company is, in fact, "committed to maintaining its competitiveness," which will involve more than just price cuts.
More changes are on the agenda for Family Dollar.
ShutterstockBeyond prices, executives plan to overhaul Family Dollar stores, which are in a need of a makeover. CNN points to in-store issues like clutter and understaffing, but a U.S. Food and Drug Administration (FDA) investigation also led to a distribution center in Arkansas being shut down earlier this year. According to an inspection report, the facility—which shipped products to Family Dollar locations—had unsafe and unsanitary conditions, namely a major rodent infestation, per The Hill.
Dollar Tree execs are seemingly aware of these issues and want to get stores, product offerings, and the Family Dollar name back up to snuff.
"The teams are focused on improving store standards. They are committed to clean them up, straighten them up, and fill them up," Dreiling said. "Improving sales productivity is a vital component of the Family Dollar turnaround, and we are extremely focused on driving sales per square foot, unit sales growth, and transaction count growth."
