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Why are so many dollar stores closing?
The dollar store format has exploded over the last decade, with companies like Dollar General and Dollar Tree adding thousands of storefronts as customers look for low-cost options.
But economic conditions have changed in recent years. Dollar stores have said they have taken a hit from inflation, reduced government benefits for the Supplemental Nutrition Assistance Program (SNAP), and inventory losses. Dollar Tree CEO Rick Dreiling called it a “very challenging macro environment” in a March earnings call.
There have also been mismanagement issues at some stores.
The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) last year entered into a corporate-wide settlement agreement with Dollar Tree and Family Dollar after violations were “repeatedly cited at multiple stores.” (Dollar Tree acquired Family Dollar in 2015.)
And in February, Family Dollar agreed to pay a $41.6 million penalty for storing food, drugs and other products in a rat-infested warehouse in Arkansas for years.
Now, the combined company is shuttering just under 6% of its total storefronts. CEO Dreiling said in March that the company would be targeting unprofitable locations that “we don’t think have a long-term future.”
Still, “the fact that maybe a couple hundred or a thousand stores are closing does not mean that this format is going away,” said Brett Hollenbeck, an associate professor at the UCLA Anderson School of Management. “It might be a necessary adjustment after so much growth.”
As for 99 Cents Only, Hollenbeck said the business was likely hurt by its size. The company’s total store count is less than 2% that of Dollar General’s.
“So they’re going to have much weaker economies of scale, (and less) ability to buy their inventory and distribute it compared to the competitors and be able to compete on price,” he said.
Why is Dollar General growing?
Meanwhile, Dollar General – which recently announced the opening of its 20,000th store and plans to open another 800 this year – seems to be in a better position.
Unlike some of its competitors, Dollar General tends to focus on rural locations, which face less competition and lower real estate expenses. CEO Todd Vasos said in December it is placing an even heavier emphasis on such stores this year, with more than 80% of new stores planned in rural communities.
“I think it’s just a better-run company,” added Hollenbeck. “They’ve just executed better on the logistics side, and they’ve kept stores in good condition.”
It’s just one sign that the dollar store format isn’t going away any time soon, even if certain players are closing up shop.
“I think we’ll continue to see dollar stores expand,” said Lauren Chenarides, an assistant professor in the Department of Agricultural and Resource Economics at Colorado State University. “We’re not necessarily going to see those expansion plans stop.”
Fight against dollar stores
While dollar store proponents say they bring affordable essentials to low-income areas, some have welcomed the news of store closures in recent weeks.
A number of communities have been working to stop dollar stores’ expansion. A report published last year by the Institute for Local Self-Reliance listed more than 70 cities and towns that have blocked new dollar stores projects and 50 cities that have enacted laws to limit their expansion.
These measures come as critics accuse dollar stores of limiting access to healthy food options, a claim that dollar store representatives have disputed.
“I think we are going to see more resistance from communities,” Smith said. “And with so many dollar stores closing now, communities have the opportunity to take back those sales dollars and find a more healthy way to create food options for the community.”
