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“Family Dollar Store” by Mike Mozart, Flickr Commons, CC BY 2.0

Profiting off the cash-strapped

Family Dollar, the bargain store chain, wasn’t cheap when its competitor, Dollar Tree, bid $8.5 billion for it.

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Family Dollar, the bargain store chain, wasn’t cheap when its competitor, Dollar Tree, bid $8.5 billion for the entire company.

The potential purchase of the third-largest dollar-store chain by the second-largest could create a mega company to reckon with the first-largest chain — Dollar General. Dollar Tree reported that the combined company would raise its profits to $18 billion annually, a profit comparable to Dollar General’s.

The new Dollar Tree maintained that if the transaction was approved by shareholders, the company would not actively change or close its new stores, but rather maintain the Family Dollar brand and reap its profits.

The dollar store industry was one of the few to benefit from economic recession. As household budgets tightened, dollar stores expanded. In 2007 before the recession, Dollar Tree operated more than 3,200 stores and Family Dollar ran more than 6,400, bringing their combined total to more than 9,600. After merging with Family Dollar, Dollar Tree could boasts 13,000 stores in 48 states — 35 percent more than seven years ago. The trend is mirrored in Dollar General’s success. Before the recession, the company operated 8,200. Now, Dollar General has 11,000 stores across 40 states, a 34 percent increase.

Other value retailers have grown in the past seven years despite the recession, but not as dramatically. As Dollar General’s profits nearly doubled and Dollar Tree's combined profits with Family Dollar increased by 64 percent, Walmart's grew by around 38 percent and Target’s by just 14.5 percent.

Both Walmart and Target have since introduced competition to dollar stores in the form of express stores and dollar sections.

 

Banner image from NNECAPA Photo Library, Flickr Commons, CC BY 2.0

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