After just over four decades in business, the 99 Cents Only Stores is calling it quits amid operating pressures in an inflationary backdrop. And there are reports that the struggling chain Express Inc. appears to be close to a possible Chapter 11 filing.
Meanwhile, retailers who have the wherewithal to make meaningful changes to their store model have been eyeing smaller stores, a move that can help them better resonate with consumers in the local markets.
99 Cents Only Stores
The banner has been struggling financially for years, and its shutdown is a reflection of the difficulties in operating in the current retail backdrop when cash flow is a problem, inflation remains high and bargain-hunting consumers are perpetually counting their pennies.
“This was an extremely difficult decision and is not the outcome we expected or hoped to achieve,” Mike Simoncic, 99 Cents’ interim CEO, said on Thursday. “Unfortunately, the last several years have presented significant and lasting challenges in the retail environment, including the unprecedented impact of the COVID-19 pandemic, shifting consumer demand, rising levels of shrink, persistent inflationary pressures and other macroeconomic headwinds, all of which have greatly hindered the company’s ability to operate.”
Clearance sales are set to begin on Friday, with Hilco Global in charge of liquidation. The retailer did not disclose how many jobs would be lost because of the winding down of operations.
The retailer said it worked with financial and legal advisors to explore all options to keep the business in operation. And after months of analyzing different alternatives, the decision to do an orderly wind-down was deemed the best option to maximize the company’s assets.
Founded in 1982, the 371-store chain across Arizona, California, Nevada and Texas became part of a group of dollar-store retailers that include Dollar General Corp. and Dollar Tree Inc. Dollar Tree acquired the Family Dollar business for more than $8 billion in 2015. It has struggled with the integration of the acquired banner and last month said it would shutter 970 Family Dollar locations.
Three days after the company said it would wind-down operations, 99 Cents’ parent Number Holdings Inc. filed a Chapter 11 petition for bankruptcy court protection in Delaware. The company said the filing was to help it “pursue a value maximizing sale of its real estate and other assets.”
Dollar store changes
For the lower-income consumer, putting food on the table is its biggest priority. Dollar General CEO Todd Vasos said in December that third quarter same-store sales saw declines across several categories, including apparel and home.
Rick Dreiling, chairman and CEO of Dollar Tree, said last month that fourth-quarter sales at Family Dollar remained weak in certain categories, like apparel, as “lower-income consumers continue to be very deliberate about their spending.” Dollar Tree has also had to increase it price points, and it now carries $3 and $5 center-store merchandise, as well as $3, $4 and $5 frozen and refrigerated items at its stores. Moreover, price points for over 300 items are between $1.50 and $7, although the majority are still in the $1 range.
Another extreme value retailer is Five Below, best known for items priced at $5 and below. The retailer raised prices in 2019 to above $5 for the first time in 17 years, testing out items at $10 and below in a Ten Below store-in-store pilot program. The 1,225 store chain said in 2022 it plans to convert over 750 locations to its new Five Beyond concept over a four-year period, with price points ranging from $5 to $10.
Retail shift and smaller-store format
The value retail channel isn’t the only one taking a closer look at its business model amid the current economic backdrop. Macy’s Inc., the department store behemoth, is shrinking its footprint to better match the level of U.S. household spending. Macy’s said in February it would close 150 “underproductive” doors by the end of 2026, leaving it with 350 locations. The move is part of its “A Bold New Chapter” strategy to strengthen its Macy’s banner and return to top-line growth over the next three years. The retailer also has been focusing on opening smaller, off-mall locations.
Smaller stores have been the focus of many retailers since even before the COVID pandemic. In 2018, specialty chain Abercrombie & Fitch Co. said it would shutter about 60 of its stores as leases expire to focus on stores with a smaller footprint compared with existing flagship doors. It found that it was able to drive greater store productivity in the smaller footprint. And Nordstrom at the same time began a local market strategy that created hubs to support its full-line department stores, using smaller format Nordstrom Local stores to better facilitate customer service needs, such as tailoring and customer pick-ups.
Smaller-format doors are expected to continue opening as retailers also eye new markets for growth, without the heavy investment in larger footprints. Walmart and Target have experimented with the smaller format in urban areas as real estate locations in cities tend to be limited in size. The thinking is that retailers can better target the local markets in the communities where the stores operate through a curated assortment mix. And that also provides a means for the stores to include local artisans, as well as host local events to engage members of the community’s marketplace.
This story was updated on April 7 at 1:24 p.m. to include information about the Chapter 11 filing by 99 Cents parent Number Holdings Inc.
