Discount retailer closes 1,000 stores

Discount retail chains thrive in some areas and flail in others.

Apr 2, 2025 - 12:12

Not too long ago, it seemed like several new ultra-discount stores such as Dollar Tree, Five Below, or Family Dollar would open every week.

By the end of 2024, there were nearly 39,000 dollar stores in the U.S., 4,000 more locations than existed in 2021. As inflation rose, so did the demand for ever-cheaper goods and groceries.

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Another reason for the growth was that as mainstream grocery stores shuttered in certain towns and cities, discounters moved in to serve residents in so-called food deserts, which tend to be areas with lower-income households.

Dollar stores have increased their food offerings in recent years, although critics say the shelf-stable items tend to be high-calorie/low-nutrient foods, including packaged crackers, cereal, chips, and cookies.

Family Dollar's challenges have included being fined over a rat-infested warehouse.
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Dollar Tree grows as Family Dollar struggles

The number of grocery stores in the U.S. has been declining since 2008's Great Recession. Mega retailers such as Walmart, Target, and Costco have filled part of the gap, and dollar stores have filled in the rest, especially in rural areas.

One of the challenges facing ultra-discounters is that they have not been able to meaningfully convert middle-class customers. With that said, Dollar Tree opened more than 500 new stores last year, including 33 in just the last quarter.

Even while (DLTR) was expanding its footprint, its Family Dollar brand was sputtering. The parent company shuttered around 600 Family Dollar stores in 2024 and announced another 370 would close as their leases expire.

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Analysts say reasons Family Dollar has struggled include understaffing, "messy stores, high prices, and over-expansion." The brand also faces competition from big-box retailers like Walmart, which cater to the same customer.

To make matters worse, the Justice Department fined Family Dollar a record $41.6 million last year because it sold items that had been stocked in a rat-infested warehouse in West Memphis. The warehouse was reportedly filled with live, dead, and decaying animals.

Dollar Tree drops Family Dollar brand

Now, in what is being described as a "strategic exit," Dollar Tree announced it is selling its Family Dollar brand to private equity firms Brigade Capital Management and Macellum Capital Management for $1 billion. Dollar Tree has owned the Family Dollar brand since 2015, having paid $9 billion for the stores at the time.

When the merger occurred, the thinking was that the two brands combined would present a more formidable challenge to rivals like Dollar General.

There are approximately 8,000 Family Dollar stores in the U.S. and nearly 17,000 Dollar Tree stores in the U.S. and Canada.

Dollar Tree stores tend to be located in suburbs and attract more middle-income shoppers than do Family Dollar stores, which are in urban areas. Family Dollar shoppers purchase groceries, cleaning supplies, and other household essentials, while Dollar Tree customers are more likely to purchase "nice to haves" such as party supplies.

"With the financial support of Brigade and Macellum, Family Dollar will be well-positioned for growth as a private company," said Dollar Tree CEO Michael Creedon in a statement.

The new ownership may give the brand an opportunity to restructure.