Why are 99 Cents Only Stores closing? The state of dollar stores today

The operators of 99 Cents Only Stores said late Thursday that they would close all 371 locations.

The announcement comes on the heels of news that nearly 600 Family Dollar locations are set to close this year. Another 400 stores under the Family Dollar and Dollar Tree banners are slated to shutter in the coming years as their leases expire.

“It’s a rough couple of weeks for dollar stores,” said Kennedy Smith, a senior researcher for the Institute for Local Self-Reliance, an advocacy group that is critical of large corporate retailers.

Despite the large number of stores being shuttered, experts who spoke to USA TODAY say these closures don’t mean this is the end of dollar stores ‒ despite some pushback from critics. Here’s why.

Why are so many dollar stores closing?

The dollar store format has exploded over the last decade, with companies like Dollar General and Dollar Tree adding thousands of storefronts as customers look for low-cost options.

But economic conditions have changed in recent years. Dollar stores have said they have taken a hit from inflation, reduced government benefits for the Supplemental Nutrition Assistance Program (SNAP), and inventory losses. Dollar Tree CEO Rick Dreiling called it a “very challenging macro environment” in a March earnings call.

There have also been mismanagement issues at some stores.

The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) last year entered into a corporate-wide settlement agreement with Dollar Tree and Family Dollar after violations were “repeatedly cited at multiple stores.” (Dollar Tree acquired Family Dollar in 2015.)

And in February, Family Dollar agreed to pay a $41.6 million penalty for storing food, drugs and other products in a rat-infested warehouse in Arkansas for years.

Dollar store chain closing:99 Cents Only Stores to close all 371 spots in ‘extremely difficult decision,’ CEO says

Now, the combined company is shuttering just under 6% of its total storefronts. CEO Dreiling said in March that the company would be targeting unprofitable locations that “we don’t think have a long-term future.”

Still, “the fact that maybe a couple hundred or a thousand stores are closing does not mean that this format is going away,” said Brett Hollenbeck, an associate professor at the UCLA Anderson School of Management. “It might be a necessary adjustment after so much growth.”

As for 99 Cents Only, Hollenbeck said the business was likely hurt by its size. The company’s total store count is less than 2% that of Dollar General’s.

“So they’re going to have much weaker economies of scale, (and less) ability to buy their inventory and distribute it compared to the competitors and be able to compete on price,” he said.

Why is Dollar General growing?

Meanwhile, Dollar General – which recently announced the opening of its 20,000th store and plans to open another 800 this year – seems to be in a better position.

Unlike some of its competitors, Dollar General tends to focus on rural locations, which face less competition and lower real estate expenses. CEO Todd Vasos said in December it is placing an even heavier emphasis on such stores this year, with more than 80% of new stores planned in rural communities.

“I think it’s just a better-run company,” added Hollenbeck. “They’ve just executed better on the logistics side, and they’ve kept stores in good condition.”

It’s just one sign that the dollar store format isn’t going away any time soon, even if certain players are closing up shop.

“I think we’ll continue to see dollar stores expand,” said Lauren Chenarides, an assistant professor in the Department of Agricultural and Resource Economics at Colorado State University. “We’re not necessarily going to see those expansion plans stop.”

Fight against dollar stores

While dollar store proponents say they bring affordable essentials to low-income areas, some have welcomed the news of store closures in recent weeks.