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The recent shareholder-approved acquisition of Family Dollar by Dollar Tree truly legitimizes the dollar store retail segment, combining two aspects of the format that have each become mainstream shopping options for millions of consumers.
The recent shareholder-approved acquisition of Family Dollar by Dollar Tree truly legitimizes the dollar store retail segment, combining two aspects of the format that have each become mainstream shopping options for millions of consumers.
That, at least, is among the theories that have emerged in the immediate aftermath of the drawn-out debate and indecision that preceded the acquisition. The deal, after all, combines a retailer specializing in the single-price-point version of the dollar store, in which every product actually costs $1, with the multi-price-point extreme value model. And this much is certain: The Dollar Tree-Family Dollar partnership will heighten competition by merging two already formidable retailers into a company that is vastly stronger than either of the two were as separate entities.
Look at the numbers: The new company will, once merged and allowing for government-mandated divestitures, generate more than $18 billion in revenue out of more than 13,000 stores in 48 states and five Canadian provinces. The retailer will certainly influence sales and shopper preferences in much of the country, most notably in such states as Texas, Florida and New York.
Texas, for example, is one of five states where Dollar Tree operates more than 200 stores, and it is also where Family Dollar has the most stores, with 1,020 outlets. The combined company will have enough weight in Texas to influence pricing and put many competitors on the defensive.
Perhaps more significant, however the new company aligns its stores — whether as Family Dollar units or Dollar Trees — these are brands consumers know and trust. More important, that trust is based on price, a core component of every retailing revolution in the history of the business. If consumers believe a retailer’s prices are competitive, that opens the door for many other initiatives.
It’s no secret that Family Dollar had been struggling of late. Both Dollar Tree and Dollar General, its major dollar store competitors, were outmaneuvering Family Dollar at a time when new leadership was attempting to change the basic Family Dollar model. At the other end of the spectrum, Five Below has emerged as one of the exciting new retailers of this decade, with a concept aimed at teenagers.
Now, in a stroke, Family Dollar is relieved of many of these pressures. By all accounts, it will relate to Dollar Tree as an operating partner, and many of the capable Family Dollar executives will likely play key roles in the new company going forward.
So, looking down the road a few years, Dollar Tree-Family Dollar will surely prove to be a viable mainstream retailer with very little direct competition. Even now there is talk that Walmart, which had intended to open convenience stores to compete with the dollar stores, is backing away from that commitment. And few other mainstream retailers have thus far committed to developing a small-store format.
So the competition going forward will pit the two major dollar retailers against each other — and against more traditional grocery and general merchandise retailers. In an emerging economy, that competition will not be as one-sided as it might have been three years ago. But, in a price-sensitive marketplace, dollar stores still must be given some huge advantages, especially in the grocery segment, where the emerging retailers are those who have become most adept at offering service.
The emerging competition is further confused by the uncertainties facing many of the nation’s major retailers. Walmart is still struggling to emerge from its less-than-stellar performance of the past few years. Target has clearly been jolted by its decision to withdraw from Canada. Walgreens is only now beginning to tackle the challenges inherent in its merger with Alliance Boots. Rite Aid is only now regaining its footing in the aftermath of a debilitating decade. And many of the regional retailers that have become the backbone of the supermarket business in the U.S. are themselves transitioning their businesses to accent services and non-grocery offerings more heavily.
So the stage is set for a new era in mass retailing, one driven, at least in part, by a dollar store segment that has become, overnight, a formidable retailing segment.
