Buying Family Dollar is proving to be less of a bargain for Dollar Tree. (DLTR)
Dollar Tree announced Wednesday it will close up to 390 Family Dollar stores this year and convert another 200 into Dollar Tree locations. Additionally, while trimming Family Dollar stores, it will open 200 others in an updated format, while adding 350 new Dollar Trees.
Family Dollar has performed poorly in one of the fastest growing areas of retail, even before Dollar Tree bought it for $9 billion in 2015. It’s suffered from neglected stores and poor merchandise selection.
Dollar Tree, the smallest of the three main dollar chains, bought Family Dollar to go toe-to-toe with with Dollar General.
Now, Dollar Tree Inc. and Dollar General Corp. each have about 15,000 stores.
The integration of Dollar Tree and Family Dollar has been much harder than expected. In recognition of the weakness of the Family Dollar brands, Dollar Tree booked a $2.73 billion write-down of that brand, leading to a large quarterly net loss.
There are signs of improvement but they are modest: Same-store sales rose 1.4% at Family Dollar stores in the fourth quarter, but that rose 3.2% at Dollar Tree.
But Dollar Tree is still under pressure from activist investors to sell Family Dollar. They also want Dollar Tree to offer items at prices other than $1, as is the case at Dollar General and Family Dollar, which sell items up to $20. Dollar Tree said it will diversify its merchandise and prices on a test basis.