The dollar store in the United States is facing financial difficulties.

• Family Dollar announced the closure of 1,000 underperforming stores.
• California-based 99 Cents Only is shuttering its 371 stores.
• Dollar General's growth has slowed from earlier projections.
• The success of Walmart and Aldi in the supermarket industry poses a challenge for all low-cost retailers.

Ruth Colvin-Graves, a 76-year-old resident of Columbus, Ohio, frequently visited Family Dollar for her shopping needs, including snacks, paper towels, and cleaning products.

Graves stated that these were things he wouldn't have to choose between providing for his son and maintaining a roof over their home.

Like many customers, the discounts and convenience enticed her.

But now, she says, she stays away from all dollar stores.

Colvin-Graves stated that they lost their concentration on identifying their specific customer demographic.

An unpleasant shopping experience is due to the increase in prices, expired goods on shelves, chronic staff shortages.

According to Colvin-Graves, navigating around boxes in aisles and finding items in the wrong places were common challenges on any given day.

She isn't alone in her shift in attitude about dollar stores.

Ellen Forroux of Medford, Oregon, prefers smaller, more conveniently located neighborhood dollar stores over Walmart, which is sprawling and less accessible to her as a disabled person living on Social Security income.

Dollar stores like Dollar Tree depend on customers like Forroux, says Forroux.

The retail sector is facing challenges, as evidenced by the recent closure of 1,000 Family Dollar stores and the bankruptcy filing of the 99-cent Only chain. Despite this, the investor-led effort to save the 99-cent Only brand is ongoing. These events have turned off customers like Graves and Forroux, and even the growing sales of Even are not immune to problems. In the past year, its shares have fallen over 30%.

What's causing store closures

John Strong, a business professor at William & Mary who specializes in dollar stores, claims that a combination of competition and customer factors are causing instability in the industry.

The 99 Cents Only chain, with 371 stores primarily in the West, lacked the scale and capability to compete with its larger rival, Dollar General, which began rapidly expanding into its core market. Additionally, the Family Dollar closures are a result of the fallout from Dollar Tree's purchase of the discount chain a decade ago.

According to Strong, merging Dollar Tree and Family Dollar has proven challenging due to their distinct customer bases and significant differences.

According to Strong, Dollar General and Family Dollar are traditional neighborhood stores, while Dollar Tree is a contemporary version of the old-fashioned variety stores.

Family Dollar stores are typically located in urban areas, while Dollar General caters to a primarily rural clientele. Dollar Tree, on the other hand, sells more seasonal and impulse buys in affluent suburban strip malls, such as wrapping paper, gift items, and toys. Both Dollar General and Family Dollar have an 80 percent consumable merchandise mix, which includes food, cleaning supplies, and healthcare.

Family Dollar has never been able to gain the following of its larger rival, Strong said.

According to Strong, Dollar General consistently outperformed Family Dollar in terms of revenue.

Family Dollar generates $225 per square foot, while Dollar General generates $275. Dollar General has an annual revenue of $39 billion, while Family Dollar has an annual revenue of $15 billion. Despite Dollar Tree's investment of hundreds of millions in Family Dollar, the company's worse locations and unkempt stores have not been enough to counteract the effects of its lower revenue.

Family Dollar has always been the weakest child in the sector, according to Strong. However, Dollar Tree's decision to close 1,000 stores and open 219 new stores this year, which is a blend of Dollar Tree and Family Dollar, indicates that there is still some potential for growth.

Aldi's supermarket growth has intensified competition in the value retailing space, particularly in small towns.

Dollar General has been conducting various experiments and trials, including larger-format stores, food-focused stores branded as Dollar General Market, and a new concept store called Popshelf, which focuses on items similar to Dollar Tree (such as wrapping paper and party favors). Some stores also sell gas.

Strong stated that there are numerous trials underway and the gasoline story is an attempt to determine whether traffic can be diverted away from supermarkets.

Despite inflation driving more Americans to seek out affordable alternatives, dollar stores have been negatively impacted by rising costs, which have forced them to increase prices. Additionally, supply chain disruptions and a tight labor market have made it difficult for these stores to maintain their operations.

Dollar Tree and Dollar General did not respond to requests for comment.

Low prices, high stress

Angela Rogers, a shift leader at a Dollar General in tiny West Alexandria, Ohio, later became an assistant manager. She states that customers appreciated the lower prices, but the low cost came at a cost.

Rogers, who was in charge of stocking shelves, directing customers to the restroom, and ringing up the register, said that it was impossible to get tasks done due to the high turnover staff and the limited time available.

Dollar General should prioritize improving its existing stores rather than opening new ones, according to Rogers' opinion.

Rogers suggested that they should have stopped at approximately 17,000 stores, invested in their existing resources, provided retention bonuses and additional hours to their employees, improved store cleanliness, and made them more presentable.

Dollar General plans to open 800 new stores this year, which is a less aggressive expansion plan than it had initially considered. Strong stated that the company had originally aimed to open 1,500 new stores annually before inflationary economic headwinds slowed the pace.

Michael Della Penna, the chief strategy officer of InMarket, a New York City-based company that studies consumer buying habits, agrees with Rogers' statement. "Improving the customer experience is crucial for dollar stores. Knowing your customers' needs and how to meet them is the foundation of marketing," Della Penna stated.

Della Penna suggests that one way to differentiate between Dollar General and Walmart is by investing in creating a better customer experience.

The future of Dollar General vs. Dollar Tree

The industry's future will be influenced by both economics and personalities, according to Strong.

"The industry is enamored of growth and has lost focus on operation," Strong says.

"The notion of having 50,000 Dollar General stores is no longer believed, with 30,000 being a more realistic estimate. Strong stated that there are too many dollar stores."

Dollar General is facing challenges with the new stores they are opening, as they do not have the same attractive economics as before, according to Strong. To address this, the brand is returning to basics and will feature more store brands to keep costs down, while still offering a few name brands like Coke and Bounty paper towels to attract customers.

He stated that he anticipates a rise in the percentage of private label companies from 40% to 70%, and they will employ known brands strategically.

And look for personalities to come into play.

The former CEO of Dollar General, Rick Dreiling, has been appointed as the new head of Dollar Tree. Meanwhile, Todd Vasos, another former CEO of Dollar General, has returned to lead the company once again.

Dreiling is expected by Strong to incorporate some concepts from his time at Dollar General into his work at Dollar Tree.

He stated that the competition now has a personal aspect.

Consumers, like Forroux, want the products and their value to return, just like the denture tablets she needs.

"In February, while checking out at Dollar Tree, I raised the issue of the missing denture tablets. The cashier then mentioned that toothpaste was also out of stock, but didn't provide any further details."