Family Dollar profits have been on the decline, falling 35 percent for the recent quarter end. Sales at stores open one year or more declined 3.8 percent for the same quarter ending March 1, 2014. The decision to shut down less productive stores and layoff some of the workforce is necessary, management believes, to curb these downward trends and remain competitive with other discount stores like Dollar General and Dollar Tree.
Pricing is another concern. Market research shows that customers who shop at these dollar discount stores are extremely price sensitive and will flock to a different store over the slightest price increase. To win customers back, Family Dollar plans to cut prices on 1,000 basic items, making them more in- line with the competition. Its sales have been flat or in decline across most consumable goods with only a few exceptions. Frozen foods and tobacco, in spite of their unhealthy image, both enjoyed sales increases for the quarter.
Family Dollar operates 8,100 stores and plans to close 370 as part of its cost- cutting efforts. It has also scaled back future plans. Rather than open another 500 stores next year, Family Dollar will open between 350 and 400.
Store closures and job reductions are expected to save about $40 million to $45 million starting in the third quarter of 2014. Overall sales during the recent quarter were $2.72 billion, which was below the $2.77 billion expected by Wall Street analysts. Family Dollar is counting on these cost cutting measures, along with a stronger focus on more profitable new stores, to improve its financial condition.