Dollar Tree, the parent company of Family Dollar, announced it would close around 1,000 stores in the coming years due to poor market conditions and store performance, which experts signaled will have an impact on Americans who rely on the budget prices in rural and inner city areas.
In the first half of 2024, Dollar Tree plans on closing approximately 600 Family Dollar stores, while an additional 370 Family Dollar and 30 Dollar Tree stores will close over the next several years at the end of each store’s current lease term, the company announced last week. In the fourth quarter of fiscal year 2023, Dollar Tree began "identifying stores for closure, relocation, or re-bannering based on an evaluation of current market conditions and individual store performance, among other factors," the company said. Between the Dollar Tree and Family Dollar brands, the parent company currently oversees a total of 16,774 stores.
While Dollar Tree executives reportedly unveiled plans to install more security cases and hire more guards to curb shrink, also known as theft or shoplifting, Storch Advisors CEO Jerry Storch told Fox News Digital the closure of dollar stores is not primarily caused by theft, but instead suggested inflation was the biggest factor.
"Because you can't obviously sell things for the traditional dollar if prices have gone up too much, so you have to break the dollar, and they have done that and go higher and higher," he said. "Then it's hard with that customer base who, was financially stressed by inflation, to raise prices enough to make up for the rising prices of their products. So, you do see the gross margin compression taking place in dollar stores and that's what's been happening to the profits. The theft is just on top of that. Sometimes it is just enough to push the profit over the edge to where you have to close the store, but it's not the only issue that they face."
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Storch said it is important to keep in mind that these 1,000 stores are probably the worst performing stores that don't see as much volume as might be expected.
"The first thing that'll happen is most of the volume will transfer to other dollar stores," he explained. "So if there's a competitor in town, the volume will largely go there. If they have two stores in town, they'll transfer to the other store that they have in town. Then, after that, some of the volume will go to a Walmart or whoever the leading discount chain is nearby, which overlaps a lot in terms of geography."
In addition, Storch said inflation has caused consumers to prioritize their spending on necessities like food over discretionary purchases like new clothes.
"When you're a dollar store, the problem is the necessities have lower margins than the discretionary purchases where you might be able to make up some of the money," he said. "But, if they're not buying discretionary goods, then your margin as a whole is lower, so that's one of the reasons their profitability is getting squeezed."
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Storch said many people are also shifting to online storefronts like Amazon and Chinese-based company Temu, which has been growing its U.S. customer base. In December, it was announced that the Chinese e-commerce platform was successfully taking on U.S. dollar stores like Dollar Tree and Dollar General, accounting for nearly 17% of market share in the United States, according to reporting by Reuters.
Dollar Tree pinned the decline in gross margin profits on "elevated shrink" and "product cost inflation."
Storch said that while there's been some debate about how much crime is rising, there's no doubt that theft is rising in the most vulnerable and highest crime areas.
"At first, I think a lot of people viewed it as almost a victimless crime, as if, 'Well, they're just stealing from big corporations. They can afford it or the losses are insured or something like that,'" he said. "But as time has gone on, I believe that we've seen a change in attitudes where people are against this kind of crime almost everywhere and there is more energy put against trying to shut it down, so hopefully we're getting more of a national consensus that this can't be tolerated at the levels that it has been at."
Retail security expert Matt Kelley told Fox News Digital that theft is one component, but that there are many implications when shrink occurs at dollar stores specifically.
"Oftentimes those dollar stores might only have one or two people in the building, so they've got limited resources by way of being able to staff those stores," he said. "So just that alone is a safety concern and when you think about shrink and theft and the things that are happening across the U.S, and maybe globally, the bad actors that are stealing from these places are becoming more and more brazen in their attempt to take things that they haven't paid for and oftentimes those can get violent… so it's goes beyond just profitability."
"It's really tying it back to the safety of the people who are working there," he added. "Something that needs to be considered is when it's less safe to work, the likelihood of you having people who even want to show up for work, especially people who are hourly associates that might be able to go somewhere and make just as much money in a safer environment, the likelihood of them coming to work on a consistent basis, or even wanting to stay there employed at that specific location is greatly diminished."
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Kelley said a combination of technology and partnerships with state, local and federal governments can be used to hold bad actors, such as thieves, accountable.
"It comes down to, how are we supporting those communities and it all starts with laws that are being written and how we're enforcing those laws and making sure that the bad actors are being held accountable," he said. "But then also, how are we protecting the exterior of the building by way of stopping the activity before it happens, making sure that as bad actor comes on site, they see physical deterrents like a LiveView tower out in the parking lot that they know that they're going to be on camera and get caught, and be identified and then potentially get arrested."
