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Some consumers are trading down, and others are spending less.
Dollar Tree Inc.’s low-income customers at its Family Dollar Stores are shopping less. In contrast, the retailer is also seeing an increase in households with annual income of over $125,000 at its Dollar Tree banner.
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The dollar store retailer has always had issues integrating its Family Dollar banner, and now its closing 970 of those locations. Six-hundred doors will close in the first-half of 2024, with the remaining 370 due to shutter over the next several years as leases expire. The company also plans to shut 30 Dollar Tree stores as leases expire over the next several years. The company closed on its $8.5 billion transaction for Family Dollar in 2015.
In contrast, Dollar Tree also opened 219 new stores in the quarter, bringing its total store openings to 641 for 2023.
Rick Dreiling, chairman and CEO, told analysts during a conference call Tuesday on fourth-quarter earnings that Dollar Tree is taking “decisive steps to strengthen” the Family Dollar brand.
“We took a thoughtful and deliberate approach to address underperforming stores by considering each individual store’s performance, local operating environment, and our broader need for scale and operating efficiencies across the portfolio,” he said adding that the estimated “net sales loss from the stores we intend to close this year is approximately $730 million on an annual run rate basis.”
How bad was it at Family Dollar? Dreiling said that while consumables comp decelerated sequentially to 2.2 percent in the fourth quarter from 6.2 percent in quarter three, “discretionary comp was down a full 12 percent.” The banner posted a fourth-quarter same-store sales decline of 1.2 percent. Despite the sizable decline, he said that still reflected a “slight sequential improvement over quarter three. Categories like apparel, home décor, electronics, and general merchandise remain weak as lower-income consumers continue to be very deliberate about their spending.”
The Family Dollar banner has a higher lower-income base that’s been hurt by persistent inflation and reduced government benefits. The 1.2 percent decline in its same-store sales comp was driven by a 0.7 percent rise in traffic and offset by a 2.0 percent drop in average ticket, the amount spent per customer in the store.
That’s in contrast to the Dollar Tree nameplate, where its same-store sales comp rose 6.3 percent, driven by a 7.1 percent increase in traffic and offset by a 0.7 percent decline in average ticket. Dreiling said the Dollar Tree banner’s consumable comp was up 10.8 percent in the quarter, while the discretionary comp was up 3.1 percent. The banner added 3.4 million new customers in 2023, mostly from households earnings over $125,000 a year.