Family Dollar's problem may be that it just has too many stores
Dollar Tree ($NASDAQ:DLTR) is facing questions from activist hedge fund investor Starboard about Family Dollar, the rival-turned-subsidiary that it has been married to for almost four years. Because Family Dollar is performing worse than its parent company — same-store sales have decreased for several quarters while Dollar Tree's sales have increased — Starboard is calling on Dollar Tree to sell it and focus on its own stores.
But why is this the case?
Although Starboard, another reason could be in line with what Americans have seen time and time again in the "retail apocalypse:" a case of too many stores in too little market space.
According to store location data from Dollar Tree and Family Dollar, there are 2,644 Family Dollars that are within a mile of another Family Dollar or a Dollar Tree. That's 31.65% of Family Dollar stores — or one in three stores — that are theoretically within a 3-minute drive of another similar store.
Out of those 2,644 Family Dollars, there are 590 that have more than one sister store within a one mile radius. While some store clusters are understandable (i.e. big cities where it takes more than a 3-minute drive to get around), others may indicate an overexposure to a poor market.
And yet, Family Dollar stores are still being opened across the country; the Houston Chronicle reported that there is another Family Dollar store opening in Houston, specifically in Sharpstown. This exact location is two doors down from a Dollar Tree, and in Houston alone, there are already 312 Dollar Tree and Family Dollar stores as of January 1.
Lower-income neighborhoods would be hit hardest should Family Dollar fold
In the hypothetical situation of Family Dollar being sold and failing, it would harm lower-income neighborhoods, the very consumers that dollar stores attract, moreso than more middle-income neighborhoods.
According to 2016 income data cross-referenced with store location data, the average Family Dollar store sits in a neighborhood with a lower income than where a Dollar Tree is. Breaking neighborhoods down by CBSA (Core-Based Statistical Area), County, or Zip Code all reveal that, on average, Family Dollars are in poorer neighborhoods.
|Median Income By...||Family Dollar||Dollar Tree|
**Not all median income data was included, as some stores had incomplete location/income data. Therefore, take these estimates with a 5% margin of error.**
Even with a margin of error to this claim, Dollar Tree literally pointed this out several years ago when it bought out Family Dollar, saying the move would give the company more reach to lower-income people in rural and urban areas.