Family Dollar has announced it’s closing nearly 400 stores in an attempt to “reposition” itself.
Dollar Tree is shaking things up.
The discount retailer says that it will shutter as many as 390 Family Dollar stores this year, change the name of roughly 200 more, and will start testing charging more than a dollar in some of its namesake stores.
The string of announcements came as Dollar Tree reported its fourth-quarter earnings.
The Chesapeake, Virginia-based Dollar Tree bought its rival Family Dollar for $9.2 billion in 2015. but the brand has been ailing. The final number of Family Dollar stores that will close depends on its parent company’s ability to get rent concessions from landlords, Dollar Tree said. It already closed 84 underperforming Family Dollar stores in the fourth quarter, which was 37 more than it had originally planned to shutter last year.
It will also stamp its name on roughly 200 Family Dollar stores.
But Family Dollar is not the only company brand going through changes.
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Dollar Tree CEO Gary Philbin also mentioned plans to test selling items that cost more than a buck at its namesake chain, a shift that’s reportedly been pushed by an activist investor.
Dollar Tree has tested the pricing change before, but Philbin shared no details about the locations where the new test will be done, what the new prices specifically will be, or how many items, or product categories, would be included.
It’s a marked change for the brand, which has traditionally used $1 as its cut-off price point, while Family Dollar sold not only $1 items but products that cost more.
John Zolidis, president of Quo Vadis Capital, said that because of its Family Dollar acquisition, Dollar Tree believes it now has the expertise to try to boost prices at its namesake stores. But it’s a risky proposition.
“The $1-only proposition is what makes people love Dollar Tree so much,” Zolidis said. “Moving away from that brand equity does present a pretty significant risk to the concept on a long-term basis if it becomes just another store. Right now, it’s unique.”
But in the short-term, testing higher prices could be helpful, he added. Doing so would raise the company’s profit margins, as it faces pressures ranging from rising labor costs to tariffs, and possibly make up for the unexpected sluggish performance of the Family Dollar brand.
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Neil Saunders, managing director of retail consultancy GlobalData also said that a different pricing structure “is a sensible move that will give the company significant flexibility in dealing with cost increases.” While some shoppers might initially be turned off “longer term, we see no real reason why this move can’t work, especially given it is employed by Dollar General and a number of other value players.”
The chain is also trying to boost profits by closing stores, a move that could also create leverage when negotiating with its landlords, Zolidis said.
Dollar Tree still plans to invest in its Family Dollar brand, however, renovating at least 1,000 stores this year. The cost to remodel a store ranges from $100,000 to $150,000, CFO Kevin Wampler said.
Follow USA TODAY reporters Zlati Meyer on Twitter: @ZlatiMeyer and Charisse Jones @charissejones
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