Business

4 numbers that explain why Family Dollar is for sale

For decades, Family Dollar has been one of the Charlotte region’s most visible companies, a retail success story whose founder became a major local philanthropist. So how did the company end up in a situation in which two rivals bidding to buy it and end local control of Family Dollar?

On Thursday, shareholders are set to vote on an $8.5 billion offer from Dollar Tree to buy the company. At the same time, Family Dollar is fighting off a hostile, $9.1 billion bid from Dollar General. Analysts and a source close to Family Dollar expect Dollar Tree to prevail and buy Family Dollar, because Dollar General said this week that it needs more time to find out whether antitrust regulators will block their bid.

While there are many factors behind the reversal in Family Dollar’s fortunes, here are four numbers that help explain why Family Dollar is up for sale next week.

$4.90: Profits per square foot

Family Dollar’s profits per square foot for the company’s most recent fiscal year came in well below Dollar Tree’s ($13.81) and Dollar General’s ($12.50). That gap attracted investors – and executives at other companies – who saw the company could provide much better returns if profitability could be brought up to match those of its rivals.

11: The number of promotions Family Dollar held in a single quarter

Under former Chief Operating Officer Michael Bloom, hired in 2011, Family Dollar adopted a strategy of much more frequent discounts to attract customers. That was a departure from its longtime strategy of being the low-price leader. But the promotional events took time and money to arrange, and they were promoted in costly newspaper circulars.

In January 2014, Family Dollar’s board of directors terminated Bloom because of disappointing results. Chief Executive Howard Levine said the company had become too reliant on promotional events, running 11 in its previous quarter.

“You get caught up in a habit of continuing to run circulars” to advertise various sales, Levine said. “Our model is not built to sustain that level of promotional activity.”

76 percent: The percentage of consumable goods Family Dollar sold last quarter

Five years ago, Family Dollar’s first-quarter sales were 67 percent consumable goods (think food, paper goods, cleaning supplies, etc.). This year, such goods made up almost 76 percent of its first-quarter sales. The reason: Over the past few years, Family Dollar has added more food, alcohol and tobacco to its stores to lure more customers. While such goods draw customers for more frequent trips and have helped boost sales, they also have lower profit margins than other goods Family Dollar carries, such as toys and clothes. So, making more room for food and cigarettes in stores has increased sales but hurt profit margins.

Less than $40,000: The income of Family Dollar’s core customer

Family Dollar describes its core customer as a female head of household making less than $40,000 a year. While Family Dollar and its peers prospered during the recession as more people looked to save money, the company’s low-income customers have been slower to recover from the recession’s aftermath. Levine has repeatedly said the company’s core customers are still financially stressed, making it harder for the company to improve its financial results.

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