The dollar store drama that’s currently playing out has gotten a little more interesting, with a development that could turn hundreds of Family Dollar stores’ going-out-of-business sales into a big bust.
First, the short and somewhat convoluted version of the story:
Dollar Express, the owner of 323 Family Dollar stores, was sued on Thursday by Family Dollar, which is owned by Dollar Tree, a week after Dollar Express announced plans to shut down its Family Dollar stores and sell them to Dollar General.
Got all that? If not, here’s the longer and more understandable version:
Private equity firm Sycamore Partners bought the stores from Family Dollar a year and a half ago, and had planned to transform them into a new dollar store chain called Dollar Express next month. But the company abruptly pulled the plug, saying last week that it is closing and selling the stores after concluding that Dollar Express “can no longer operate as a viable standalone business”.
So Family Dollar sued to get its stuff back, in a legal dispute that lasted all of 24 hours.
Family Dollar filed suit against Dollar Express in a Delaware state court, demanding the return of $6.8 million worth of products that it recently delivered to Dollar Express stores. Family Dollar said that sum represented but a small portion of the $60 million in merchandise that Dollar Express still hadn’t paid for.
Since purchasing the stores, Sycamore continued to operate them under the Family Dollar name, pending their eventual rebranding to Dollar Express. During the transition period, Family Dollar provided inventory to the Dollar Express-owned Family Dollar stores, “including perishable goods, products, and merchandise with a limited shelf life, as well as goods and services explicitly marked with (Family Dollar’s) private labels,” the lawsuit read.
Family Dollar seemed as surprised as anyone to learn that Dollar Express decided to call it quits last week. No sooner had Dollar Express notified its supplier that “due to their uncertain financial position, Defendant would not be able to make payment to Plaintiff and would not commit to make further payments,” Family Dollar began noticing “articles appearing in various news outlets that Defendant would be liquidating all of its stores and would be purchased by another dollar store chain.”
Legally, there’s not much that Family Dollar can do right now to get an apparently insolvent debtor to pay its $60 million in unpaid invoices. But one thing it could do, was demand the return of its most recent deliveries.
“Where the seller discovers that the buyer has received goods on credit while insolvent,” the Uniform Commercial Code reads, “he may reclaim the goods upon demand made within ten days after the receipt.”
The $6.8 million figure represents the total goods delivered to Dollar Express during the ten days prior to April 3, the day that Sycamore publicly announced its plans to shut down its stores. In its lawsuit, Family Dollar demanded the immediate return of the merchandise, and requested a court order “prohibiting Defendant from selling any goods and products that are the subject of the Reclamation Demand.”
Family Dollar filed the lawsuit on Thursday afternoon. By Friday morning, it dropped the case. But it didn’t say whether Sycamore found a few million and paid up, or agreed to return the past ten days’ inventory.
If the latter is true, it could put a serious crimp in the Dollar Express-owned stores’ going-out-of-business sales. If you were planning on scoping out some deals ahead of the stores’ demise over the next couple of months, you could find a lot of empty shelves if Dollar Express had to pack up much of its inventory and send it back to Family Dollar. And if there’s little or nothing to sell, that could force the stores to close sooner than anticipated.
Hopefully just temporarily, though. Once the stores are closed, Dollar General plans to buy them. But so far, Dollar General isn’t saying anything about its plans for the stores, such as which and how many of them it plans to reopen under the Dollar General name. Its only public comment so far has been a short statement confirming what we already knew, that it has reached a deal to buy the stores, subject to federal regulatory approval.
So there’s still a lot of uncertainty about what happens next. It appears the latest chapter of this dollar store drama is just getting started.
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