Discount stores were thriving. How did they stumble?

Discount "dollar stores" were booming not so long ago, reaching into small towns and urban neighborhoods across the country. No longer: Dollar Tree last week announced the sale of its Family Dollar subsidiary for a fraction of what the company paid to buy the business a decade ago.

Dollar Tree purchased Family Dollar for $8.5 billion. Now Family Dollar is being sold to two private equity firms for $1 billion, "far less" than Dollar Tree originally paid for the chain in 2015, said MarketWatch. What happened? Low-income shoppers "wrestling with inflation" cut back on their spending with the discount chains. But the sector was also plagued with "too many store openings, poorly maintained stores and pricing."

Weren't dollar stores on the rise?

"Dollar stores are thriving in America," Visual Capitalist said in 2019. E-commerce at the time was "indisputably disrupting" brick-and-mortar retail, which would only accelerate during the Covid-19 pandemic. Nonetheless, 11,000 new dollar stores opened between 2007 and 2017, a rate of "roughly 93 new stores a month, or three per day." Their prices were similar to what you would find at Walmart, but locations were more likely to be nearby. "Despite the 3,500 Walmart Supercenters spread out across the country," it is likely "there's a dollar store even closer."

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Were there signs of trouble?

In 2020, The New Yorker said, there had been reports of more than "two hundred violent incidents involving guns at Family Dollar or Dollar General stores since the start of 2017." Some of the violence could be explained by the "stores' ubiquity" — by that point there were more than 16,000 Dollar Generals and nearly 8,000 Family Dollars in the U.S. The stores were also said to be "thinly staffed and exist in a state of physical disarray," making them vulnerable to crime.

What ultimately caused the downturn?

"Blame Walmart," said CNN. Big box retailers, like Walmart and Target, in 2024 "lowered prices on some items in an effort to draw inflation-fatigued shoppers." That took a toll on dollar stores. Walmart has been "doing a pretty nice job" luring customers away from the smaller discount stores, Dollar General CEO Todd Vasos said in December. While the dollar stores made a number of "strategic mistakes," CNN said, it has also long been true that Walmart and dollar stores tend to cannibalize each other's sales. "When Walmart is doing well," said a former executive, "Dollar General struggles." The result: About 600 Family Dollar stores closed in 2024, and Dollar General plans to shut down nearly 100 of its outlets soon.

What's next for consumers?

They may go back online. Competition to dollar stores from "Walmart and online discount retailer Temu continues to intensify," said the Financial Times. The folks who once shopped at dollar stores may also be cutting back overall. Chains like Family Dollar rose on "spending by the poorest urban Americans," but inflation and cuts to pandemic-era aid mean those shoppers "are not doing so well."