Family Dollar Stores to expand into California
Another dollar retail chain is looking to cash in on California.
One of the nation’s largest chains of dollar retailers, Family Dollar Stores Inc., will open its first stores in the state Thursday, stepping into the home turf of rival 99 Cents Only Stores Inc.
The four shops — located in Fontana, Riverside, Ontario and Rialto — are the first step in a major push into California by the North Carolina company, which plans to open up to 50 stores in the Golden State by next fall.
“California has been on our radar for a few years, and we finally thought it was the right time given economic conditions,” Family Dollar spokesman Josh Braverman said.
As the tough economy drags on, dollar store chains are looking to expand rapidly as shoppers stretching their money shower them with business. Another rival chain — Dollar General Corp., based in Goodlettsville, Tenn. — has recently been reaching west and plans to open its first stores in California next year.
“Strategically, California is an attractive market to be in,” said Matt Arnold, an analyst at Edward Jones & Co. “It has a huge, dense population that retailers really like to pursue.”
99 Cents Only was a pioneer of the single-price retail concept. It was founded in 1982 and now has more than 280 stores in California, Texas, Arizona and Nevada. Company officials were not available Monday to discuss the new competition.
Family Dollar, like its competitors, has performed handsomely in recent years. It recently reported a profit of $79.85 million in the fourth quarter, up from $73.95 million in the same period last year. Annual profit for the 2011 fiscal year was $388.4 million.
Last week, 99 Cents Only said its profit rose to $15.1 million in its second quarter, which ended Oct. 1 — up 17.1% from a year earlier. Family Dollar, by contrast, had a profit of $262 million for its 2004 fiscal year.
Competition could be fierce as dollar store chains march into the state and vie for the same core customers — those who earn $40,000 or less a year, analysts say. In Southern California, industry experts say, small mom-and-pop stores are especially vulnerable against the muscle of national chains.
Less clear is how the competition will play out between Family Dollar and 99 Cents Only, which recently agreed to be acquired in a $1.6-billion deal.
The discounters have different strategies, which could allow both to grow without directly poaching from each other’s business, said Joan Storms, an analyst at Wedbush Securities in Los Angeles.
City of Commerce-based 99 Cents Only, which often places stores in middle-class neighborhoods, has positioned itself as a grocery-oriented one-stop shop where families can pick up fresh produce in between trips to bigger retailers such as Costco or Target, Storms said.
Family Dollar, on the other hand, caters primarily to urban or rural areas with an assortment of goods such as canned food, clothes and home decor. The average Family Dollar is about 8,000 square feet, while 99 Cents Only stores are about 20,000 square feet.
“There is some overlap, but the two chains are differentiated enough that there is room for both,” Storms said.
But that could change as dollar stores broaden their ambitions and angle to become the convenient neighborhood market by expanding their food selections. In recent years, Family Dollar has wooed customers on food stamps by offering more staples such as milk and eggs, analyst Arnold said.
Family Dollar, which operates about 7,000 stores around the country, will focus on Southern California before venturing north, spokesman Braverman said. And 99 Cents Only is likely to expand beyond its Western stronghold, analysts predict.
The two chains will compete head-to-head for the wallets of cash-strapped shoppers, Arnold said. “There are big constraints in consumer spending, and there is also constraints in how much these companies can expand without grinding too close to each other,” he said.
Family Dollar’s shares dropped 58 cents, or 1%, to $58.15 on Monday, while shares of 99 Cents Only remained flat at $21.72. Dollar General dropped 14 cents to $39.72.
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