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Originally published April 10, 2014 at 5:32 PM | Page modified April 11, 2014 at 6:48 AM

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Dollar stores feeling pain from low-income squeeze

Dollar chains and other low-price stores are also seeing an increasing divide between low-income people who are facing more constraints on spending power and the higher-income households who are benefiting from improving housing values and the stock market.


The Associated Press

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NEW YORK — Dollar stores are feeling the pinch from mounting financial pressures on low-income shoppers.

Family Dollar said Thursday it will cut jobs and close about 370 underperforming stores as it tries to reverse sagging sales and earnings. The discount-store operator will also permanently lower prices on about 1,000 basic items.

Family Dollar, which operates 8,100 stores, did not provide details on how many jobs it would cut.

The retail chain follows competitors in highlighting the split between shoppers who are enjoying an improving economy and those being left behind.

Dollar General, the nation’s largest dollar-store chain, with about 11,100 locations, offered a weak profit outlook last month after reporting weak fourth-quarter sales.

And Dollar Tree, which operates nearly 5,000 locations including many in the Seattle area, missed profit expectations for the holiday quarter in February.

Family Dollar has stumbled even more than its rivals because of mistakes in pricing, merchandising and the locations of its stores, analysts say.

Still, the industry’s problems are a big departure from a few years ago, when Family Dollar and other chains packed in customers and expanded rapidly by catering to cash-strapped people during the Great Recession.

But that expansion has spread shoppers thin. And retailing giant Wal-Mart is muscling in, too, by accelerating its growth in small stores and pushing its low prices.

It’s also increasing its offerings of small packages that are easy on the budget.

Dollar chains and other low-price stores are seeing an increasing divide between low-income people who are facing more constraints on spending power and the higher-income households who are benefiting from improving housing values and the stock market.

Wal-Mart reported in February its fourth consecutive quarter of declines in revenue at stores open at least a year.

Overall, the still-tough economy and an unusually cool March resulted in many of the handful of merchants, including Gap, that still report monthly sales to announce declines in revenue at stores open at least a year on Thursday.

Among the most recent pressures: an unseasonably cold winter throughout the Northeast and Midwest pushed up utility bills. Food prices also crept higher in February.

And extended unemployment benefits expired at the end of last year for nearly 1.4 million Americans who have been out of work for six months or longer. Those recipients had gotten weekly checks of about $300, on average.

In February, Congress approved legislation that made a small cut to food-stamp benefits.

Meanwhile, wage growth has been sluggish since the recession’s end nearly five years ago. And workers in some low-paying industries have seen little growth.

Family Dollar CEO Howard Levine told investors on a call that the poor weather led to numerous store closings, disruptions in merchandise deliveries and higher-than-expected utility and maintenance expenses. But, he said, shoppers’ financial constraints and a discount-driven holiday season also played a role.

Levine said the company is reviewing its business to increase efficiencies and boost its financial performance. He said the price cuts, store closings and job eliminations are part of actions it is taking immediately to lift its performance during the review.

Family Dollar had shifted from its focus on $1 items and had offered too many temporary promotions, retail consultant Craig R. Johnson said.

The company now says it wants to refocus on everyday low prices and $1 items to restore confidence that it offers a predictably good deal every time a shopper visits the store.

Shares of Family Dollar fell more than 3 percent, or $1.90, to close at $57.17 Thursday.

Dollar General’s stock slipped nearly 2 percent, or 91 cents to $55.45, while Dollar Tree’s shares fell more than 2 percent, or $1.25, to $50.88.



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