Family Dollar in Financial Straits Due to Competition and Store ClosureBy: Galen Velonis - April 14, 2014
The announcement on Thursday that Family Dollar will close nearly 400 stores has not helped the struggling company.
The Motley Fool declared today that “Family Dollar had a terrible quarter!” The company reported 2.7 billion dollars in revenue for this quarter, short about one hundred million dollars it needed to appease investors. To compare, the company reported 2.9 billion dollars in revenue this time last year. The six percent drop signifies an end to the thirty two per cent growth of $7.9 billion to $10.4 billion from 2010 to 2013. The Fool attributed the drop to competition from Dollar General and Five Below, but remained optimistic the company would recover.
Dismissing claims the downturn is due to poor weather or a re-cooperating economy, The Week asserted that the market for discount stores has been saturated. Unemployment numbers are still high and food stamp spending remains on the rise. These conditions are ripe for stores, but the aggressive expansion of the past has lead to a downturn of the present. The company added 5700 stores in the past five years, and now it is closing 370.
In order to reverse the downturn, Family Dollar is also cutting prices on hundreds of items across its stores. “That magical $1 price point that has been so important to us over the years, it’s hard to find sometimes,” Chief Executive Officer Howard Levine told the Morning Call, “these investments will make us more competitive.”
Speculation that the company might be taken over has been around since 2011. According to Bloomberg News, chief investor and hedge fund billionaire Nelson Peltz made an unsuccessful bid three years ago. Levine seems hesitant to sell, especially considering his father founded the company. Analysts predict further drops this year, further increasing the likelihood that hands might change. “The ice has got to be getting thinner underneath [Levine’s] skate,” Edward Jones analyst Brian Yarbrough told Bloomberg, A lot of times you’ll see private equity take an interest in some of these broken businesses, so you can’t rule it out.”
Image via Family Dollar, Facebook