A Deal Between 'Dollar' Stores Raises The Stakes Against Wal-Mart

The slice of retail aimed at America's most budget-conscious consumers is consolidating. Dollar Tree is buying Family Dollar for $8.5 billion, a deal encouraged by activist investors Carl Icahn and Nelson Peltz. The new company will have 13,000 stores, making it a more formidable competitor — in size, at least — to Wal-Mart.

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The world of dollar stores is a world worth billions of dollars. Today, Dollar Tree announced a deal to buy Family Dollar for $8.5 billion. The new company will have 13,000 stores in North America. Just for some context, Walmart has 11,000 stores around the world. NPR's Sonari Glinton reports.

SONARI GLINTON, BYLINE: The most competitive sector in retail is at the bargain end - you know, Dollar General, Dollar Tree and Family Dollar. Well, I'm at a Family Dollar store in South Central Los Angeles. If you ask customers why they come here to shop, they will give you one answer.

Well, can I ask you a question about Family Dollar?

MELBA NAVAWARRETE: Oh, that's my baby.

GLINTON: What do you like about Family Dollar?

NAVAWARRETE: Well, they're cheap.

CLIFFORD JUDGE: Some of the prices are reasonable.

PASCHELL GLEASON: It's a lot cheaper here than it is at the store.

GLINTON: That was Melba Navawarrete, Clifford Judge and Paschell Gleason who all shop at Family Dollar for the convenience and price. In recent years, the number of dollar stores has grown dramatically, and some stores like Family Dollar have strayed from the true dollar store philosophy - sell things for a dollar.

HOWARD DAVIDOWITZ: They sell things for up to $10.

GLINTON: Howard Davidowitz is a retail analyst and investment banker. He says not being a true dollar store has hurt Family Dollar and helped its new owner Dollar Tree.

DAVIDOWITZ: Daller Tree has stuck to selling everything for a dollar or less. They came out the biggest winner because they're the cheapest. I think that's an important point.

GLINTON: It is, indeed, an important point. It was a point that activist investors such as Carl Icahn and Nelson Peltz have been trying to impress on Family Dollar executives. Those two encouraged its sale. But Davidowitz says something bigger is afoot.

DAVIDOWITZ: The story is the growth of the sector and that mirrors where America is.

GLINTON: So what I'm curious about is, while the dollar stores are doing well, then there's the Sears, the JC Penney.

DAVIDOWITZ: Are getting destroyed because they're middle-class stores.

GLINTON: Put the dollar stores?

DAVIDOWITZ: The dollar stores are doing better because they have more and more customers who are trading down. If you look at the reality, you will see what's happening in the economy. And it doesn't look too pretty.

GLINTON: Davidowitz says the outlook for dollar stores - that continues to look very pretty. Sonari Glinton, NPR News.

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