For a cheap date, Family Dollar sure has its suitors.
The Matthews, North Carolina, company is being courted by rivals Dollar General Corp. and Dollar Tree Inc. with a pair of multibillion-dollar offers.
At first glance, reducing competition seems like a bad thing for consumers, but retail expert Zeeshan Haider says an acquisition might work in shoppers’ favor.
“During the recession, dollar stores began to see more people in higher income brackets frequenting their stores,” said Haider, an industry research analyst at IBISWorld. “When the economy started to recover, those folks went back to shopping at other places, like Wal-Mart and Target.”
But dollar stores don’t want to lose that wealthier customer base.
That prompted an $8.5 billion bid last month by Dollar Tree to acquire Family Dollar Stores Inc. Last week, industry leader Dollar General bested its rival with a $9.7 billion offer. Family Dollar rejected the latter, however, saying antitrust regulators would make the deal difficult to seal.
The thinking behind all this is that a larger discounter can battle the big boxes better, Haider said.
The dueling retail chains declined to comment on the bidding war, but Haider said it doesn’t matter; their actions speak for them.
“A bigger footprint would allow (one of them) to make changes that would appeal to that higher-income group,” he said. “They could give their stores moreambience. Things like wider aisles, better lighting and a larger selection of merchandise.”
And nabbing the Family Dollar also means acquiring its $70 million distribution center in Ashley, which was built in 2012.
“I’m sure they know about that,” Haider said.
Rick Dreiling, Dollar General’s chairman and CEO, has made no secret of his company’s desire to acquire Family Dollar, having tried multiple times in the past few years.
It appears that Dollar Tree’s offer finally forced Dollar General to make a bid that would grab the attention of Family Dollar’s board of directors.
Dreiling was willing to put off retirement until May 2016 to assist in the integration of the two companies if the deal had been accepted. He is set to retire next year.
The Dollar Tree and Family Dollar combination would create a chain with almost 13,000 stores in 48 states and annual sales of more than $18 billion.
Lisa Surack says the wheeling and dealing has very little to do with her. She recently shopped at the Dollar Tree in southwest Fort Wayne.
“I’m not what you would call a regular shopper at dollar stores,” said Surack, whose husband is Sweetwater Sound founder Chuck Surack. “But I do come in to buy my daughter chore toys, paper goods, school supplies and things like that.”
One appeal of dollar stores, Lisa Surack said, is their convenience. “I don’t like big stores,” she said. “I like to be able to get in and get out.”
Surack is the kind of customer the dollar chains are seeking, Haider said.
“They’re not competing against themselves, but going after the big-box stores,” he said. “In some metropolitan areas, going to a Wal-Mart isn’t convenient, but Family Dollars are everywhere.”
A post-merger Family Dollar would aim to convince shoppers that it has merchandise comparable to what they’re used to seeing at larger competitors, retail analyst Jennifer Cherry said.
“The stigma of shopping at dollar stores has gone away,” said Cherry, senior vice president of Marx Lane Co. in metro Detroit. “People pride themselves on great finds and bargains, and it’s across all income groups. You see Mercedes and BMWs parked outside dollar stores now.”
The big-box outlets are aware.
“That is why you’re seeing Wal-Mart opening smaller locations and Target doing the same,” Haider said. “They’re trying to respond to people who want that kind of shopping experience.”