Dollar Tree Accused of Dirty Tricks in Dollar Store Drama

As thousands of Family Dollar employees across the country fret over their future, more information is emerging about what prompted their stores’ owners to abruptly announce layoffs, going-out-of-business closeouts and a proposed sale of 323 shuttered stores to rival Dollar General, just a month before they were due to be rebranded as a brand-new dollar store chain called Dollar Express.

To hear Dollar Express explain it – this is Dollar Tree’s fault.

In a newly-released filing with the Federal Trade Commission, Sycamore Partners says its would-be Dollar Express chain “can no longer operate as a viable standalone business” due in part to “an overall decline in sales in the dollar store industry” – but due in larger part to Dollar Tree’s “targeted attempt to drive Dollar Express out of business.”

Dollar Tree, you’ll remember, orchestrated the sale of the hundreds of Family Dollar stores to Sycamore in the first place, as a condition of its 2015 purchase of the Family Dollar chain. The FTC required Dollar Tree to divest the stores in markets “where competition would be lost” if the combined company was allowed to run two stores that were too close to each other.

Sycamore happily scooped them up, announcing plans to debut Dollar Express – but then the seller allegedly began plotting to kill Dollar Express before it could even get off the ground.

Since November 2015, Sycamore alleges, Dollar Tree has opened 37 Family Dollar stores – all of them newer, cleaner and more appealing – very close to existing Dollar Express-owned stores. Sycamore also “believes, based on publicly available information, market research and general industry knowledge, that Dollar Tree plans to open at least 70 other Family Dollar stores in the same trade area as a Dollar Express store and believes Dollar Tree will almost certainly open many more.”

The problem is, all of the Dollar Express stores have kept the Family Dollar name out front while preparing for their planned transition to Dollar Express. So there’s really no way for shoppers to know that the older Family Dollar stores are not owned by the same company as the nicer, newer ones down the street.

And given the choice between a tired old Family Dollar awaiting a refresh, and a shiny new one just a short drive away – which would you choose?

Sycamore knew which one shoppers would choose – and it insinuates that Dollar Tree knew full well, too.

A Dollar Tree spokesman declined to comment on the allegation. But if Dollar Tree was really up to such dirty tricks, it wouldn’t be the first time a bigger retail chain has sold off stores, only to try to sabotage their upstart competitor.

A similar situation occurred a couple of years ago, when the FTC ordered the grocery chain Albertsons to sell 168 stores as a condition of its planned merger with Safeway, and Haggen bought most of them. Less than a year later, the by-then struggling Haggen sued Albertsons, accusing it of actively trying to sabotage Haggen’s chances of success by, among other things, marking up prices and stocking the shelves with expired products just before handing over the stores’ keys to the new owners.

Albertsons got the last laugh, settling the lawsuit for a fraction of what Haggen had sought – and then buying out Haggen and converting many of the stores back to Albertsons.

In an effort to prevent that type of situation from happening again, Sycamore sought out Dollar General as a buyer for its soon-to-close stores. “Prior to signing with Dollar General, Dollar Express contacted other potential buyers to take over the operation of its locations as dollar stores,” it informed the FTC. The potential buyers’ names are redacted in the public version of the document. But only Dollar General “expressed interest in operating these locations as dollar stores.”

So Sycamore is seeking swift FTC approval of Dollar Express’ proposed sale to Dollar General, to minimize the disruption to the company’s approximately 3,000 employees. There has been some confusion about why Dollar Express is closing down all of its stores before the sale, instead of keeping them up and running and selling them as-is to Dollar General. Well, according to the documentation filed with the FTC, Sycamore said the decision has already been made to “expeditiously wind-up and liquidate the Dollar Express business”, regardless of when or whether the FTC approves the sale. If the sale does goes through, Sycamore intends to hand over closed, emptied-out buildings to Dollar General for it to do as it wishes. Dollar General may reopen many of the stores under its own name, and may even rehire store staff.

But Dollar General has stayed mum throughout this process, so its plans simply aren’t known.

Whether you blame Dollar Tree for sowing chaos, or Dollar Express for being a naive buyer – Albertsons for being a bully, or Haggen for being ill-prepared – much of the blame for both situations is likely to fall on the FTC itself, for approving each deal in the first place. What was meant to be a remedy for a lack of competition, instead created a cruelly cutthroat competition in each case.

And you can bet three retailers in particular will be watching this play out very closely. Because – stop us if you’ve heard this before – a large retailer is looking to buy another large retailer, and plans to sell hundreds of stores to a small, regional competitor in order to earn FTC approval for its planned deal.

Those three retailers would be Walgreens, Rite Aid and Fred’s. In December, Walgreens announced plans to sell 865 Rite Aid stores to Fred’s Pharmacy, a small Memphis-based chain, as Walgreens seeks to finalize its planned purchase of Rite Aid. The FTC has not yet ruled on the proposed buyout, leading many observers to conclude that Walgreens may have to agree to sell even more stores.

But is Fred’s ready to more than double in size, and run stores in states where it’s never operated before? Or is it about to become a Haggen- or Dollar Express-style sucker, setting itself up for disaster by accepting a larger rival’s castoffs and hoping that rival doesn’t crush it? Fred’s believes it can succeed where Haggen and Dollar Express failed. Just this morning, it released a statement saying that it “remains committed to purchasing additional assets, including up to 1,200 Rite Aid stores, to the extent necessary to obtain the FTC’s approval of the transaction.”

That follows comments yesterday from Walgreens’ CEO Stefano Pessina, who said he is “still optimistic” the deal will be done. “For the time being, we believe that Fred’s is the right buyer,” he told investors. “If for some reason this will not be the case, then we will review our options.”

Fred’s may want to review its options right about now, too. Just like 3,000 Family Dollar employees, who – thanks to Dollar Tree, Dollar Express, the FTC, or all of the above – are currently facing a very uncertain future.