Saturday, May 18, 2019

Retail Archeology looks at Family Dollar, a tale of the Retail Apocalypse

I concluded 6,000 stores have already announced they are closing in 2019, more than all of 2018, a tale of the Retail Apocalypse by writing "this year alone I've written about the closing down of Payless ShoeSource, Gymboree, and Charlotte Russe, all of which happened in February and March.  The year is yet young and many more stores and several chains could still go out of business."  Those three chains were top first three in the following graph that I used to illustrate that article.

Full-sized original here.

The next chain listed is Family Dollar, which is closing 390 stores and converting humdreds more into Dollar Tree stores.  I've been waiting for an opportunity to blog about it since.  Fortunately, Retail Archeology uploaded a video yesterday that asked What Is Going On With Family Dollar?  For the answer, please watch.

In this episode we take a look at Family Dollar, a discount store chain that just recently announced they will be closing hundreds of stores.
International Business Times had more details in Store Closings 2019: Full List Of Retailers Closing This Year.
Dollar Tree is also closing locations as it said that it would shut the doors at 390 Family Dollar stores in fiscal 2019. The closures are a part of Dollar Tree’s 2019 store optimization program. The company also closed 84 stores in the fourth quarter, up from the 37 planned.
By the way, Dollar Tree could get into even more trouble because of the U.S.-China and then trade war.  CNBC explains in Dollar Tree is the ‘poster child’ for tariff risk, according to Credit Suisse.
Discount retailer Dollar Tree’s core business model is a lightning rod for tariff impact, according to Credit Suisse.

With direct imports from China on 40% to 42% of its merchandise, Dollar Tree is the perfect candidate to get hit hard by the trade war, the firm said. Despite this exposure, the stock may have fallen too much too fast given there is still a good chance for a trade deal, the analyst said.
“Approximately 9% of products, measured by sales volume, would have been affected” when the initial 10% tariffs were implements, according to the company’s most recent 10-K filing.

Credit Suisse said Dollar Tree would undoubtedly be hit hard if the U.S. decides to further raise tariffs on a broader basket of goods including toys, greeting cards and small electronics. However, the bank stands by its 70% likelihood of a deal getting passed between the two countries, eventually reversing the latest tariffs.
I hope Credit Suisse's optimism is warranted, as I'm still of the opinion that "trade, which I haven't written enough about, is likely to be straw that breaks the camel's back of the economic expansion and that a recession is inevitable."

Speaking of optimism, while 390 stores closing looks ominous, there are "7,000 Dollar Tree locations and more than 8,000 Family Dollar locations across the country" according to CNBC, so the percentage of stores being affected is relatively small.  That's good news.

Not good news is what International Business Times reported about Shopko.
After filing for Chapter 11 bankruptcy, Shopko said it will close all of its store locations by June 16. The closures affect 360 stores in 26 states.
Unless something more dramatic intervenes, I know which tale of the Retail Apocalypse I'm telling next.

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