Have you looked at your financial portfolio lately? Are you still bullish about the current state of our economy?
Politics aside, in an informal poll of 14 retailers in the Mid-Atlantic and Northeast, none seemed very optimistic about the near-term future of their businesses, and some said they are already feeling the squeeze both from price increases and concerned consumer reaction.
Even at 10 percent, how can this be a productive idea? After nearly two years of dealing with flat sales once inflation mitigated, things will only become more challenging for retailers who are caught in the middle between tariff-driven price hikes and economically challenged consumers – many of whom simply can’t afford to spend more for groceries.
When the universal tariffs began earlier this month (some started slightly earlier), their impact was felt almost immediately. And not in a good way for the U.S. The financial markets plunged deeply and nations which had been strong trading partners with the U.S. since World War II began searching for better deals from other countries. The dollar continued to lose value and only after the usually rock-solid bond market began to show instability did the president delay significantly higher tariff levels for 90 days (except for China).
Whether those announced increased amounts will be rescinded or modified is anyone’s guess. But the short-term damage has already been done. Are the markets going to rebound that quickly? Doubtful.
How much will it ultimately cost to buy a bunch of bananas? A bouquet of flowers? Three avocados? A pound of coffee?
For traditional supermarkets, the tariffs are yet another incentive for consumers to shop at discounters like Walmart, Costco and Aldi. But even those value merchants are going to face most of the same issues that other food merchants encounter.
We all know that the average food bill increased about 30 percent since COVID first began in early 2020. What’s that number going to be next week or over the summer?
Last month (before the tariffs were officially imposed), research group The Conference Board, said its “Consumer Confidence Index,” decreased 7.2 points, one of its lowest confidence scores in more than a decade.
“We took a hit after inflation levels normalized in 2023 and 2024; how much worse will it get if consumers are forced to deal with significantly higher prices? This isn’t a political issue, it’s simple economics. People can’t spend what they don’t have,” said one Mid-Atlantic regional chain senior VP.
There are other policy-related economic issues that will almost certainly impact food retailers. Of particular note is a current bill that seeks to reduce SNAP benefits by as much as $230 billion over the next decade, with much of the responsibility of offering food-assistance programs shifted to individual states. The potential of that much of a financial hit would be a death notice to certain retailers.
Moreover, the whacking of many federal workers (with a promise of more to come) has already created rising unemployment in some areas.
Here’s a quote from one retail executive with the bulk of his stores in the Baltimore-Washington area: “Who thought that the DC market wouldn’t be recession-proof forever? If you didn’t think so, you’d be in a small minority. However, when you fire tens of thousands of federal workers and strike fear in the minds of many other government employees, you’ve got a situation that the DC market may now be more vulnerable than any other market in the country. The firings have already adversely impacted our sales.”
Still feeling “liberated?”
Dollar Tree Finds Sucker, Er, Buyer For Troubled Family Dollar Business
Dollar Tree finally unloaded its larger-than-life albatross last month when it announced that it will sell its Family Dollar unit to two private equity firms – Brigade Capital Management and Macellum Capital Management.
To say that Dollar Tree took a haircut on the deal would be a huge understatement. Ten years ago, the Chesapeake, VA-based discounter acquired Family Dollar for $9 billion in an attempt to strengthen its share nationally against dollar store market leader Dollar General.
That deal went south almost immediately. In the past two years, the company had to shutter a large distribution center in West Memphis, AR after the facility was infested with rats. For that indiscretion, Dollar Tree paid a fine of $41.6 billion. In 2023, it recalled more than 300 items from multiple warehouses that were improperly shipped to stores in 23 states because they did not comply with temperature guidelines.
In June 2024, Dollar Tree finally gave up on Family Dollar, announcing that a sale or spinoff was possible. It also accelerated its store closures of the brand, shuttering 600 Family Dollar units last year. Another 370 stores will close during the next 18 months as leases expire.
“This is a major milestone in our multi-year transformation journey to help us fully achieve our potential,” said Mike Creedon, Dollar Tree’s CEO who was named to that post in December 2024, after serving as interim chief executive for about a month. “We will continue to grow and optimize our Dollar Tree business to maximize value for Dollar Tree associates, customers, and shareholders with an enhanced focus on compelling initiatives, including our expanded assortment, significant planned new store openings across the United States, and transactions that advance our growth strategy.
“Under the experienced, dynamic leadership of Family Dollar president Jason Nordin, and with the financial support of Brigade and Macellum, Family Dollar will be well-positioned for growth as a private company. With the support of a dedicated team, Family Dollar will be able to strengthen its commitment to providing affordable and essential goods to customers so they can do more with less.”
Matt Perkal, partner at Brigade, said, “Since 1959, Family Dollar has served its customers by offering convenient, high-quality products at a great value and the business is a pillar in communities across the United States. We look forward to continuing and enhancing Family Dollar as its own enterprise, which we are confident will drive greater success for the business and value for all of Family Dollar’s stakeholders, including employees, customers, and communities.”
“This transaction presented a unique opportunity to play a key role in reinvigorating an iconic business. Throughout this process we have met an exceptional group of executives that are dedicated to the company and its customers. We look forward to executing the strategic plan we have developed together,” added Jonathan Duskin, CEO and partner of Macellum. “In particular, we are excited that Duncan MacNaughton will be joining the company as chairman (he was president and COO of Family Dollar from 2017-2019), where his insights as a former president and chief operating officer of the company, and broader industry experience, will be invaluable.”
MacNaughton, who has had many senior level wholesale and retail posts during his 40-year career including stops at Albertsons, H-E-B, Walmart and Supervalu, added, “I am excited to collaborate with the Family Dollar team and our incredibly capable and supportive new investors to drive the business forward in this next chapter of its evolution. Family Dollar has a tremendous potential to grow and succeed as an independent company, and I am honored to be able to play a role in helping the company fully realize that opportunity.”
Brigade was founded in 2006 by Donald E. Morgan III, CIO and managing partner, and is headquartered in Manhattan.
Macellum was founded in 2009 by Duskin and primarily invests in undervalued companies that it believes can appreciate significantly in value through changes in strategy, capital allocation and improvements in operations. It is also based in Manhattan.
Family Dollar’s headquarters will remain in Chesapeake, VA.
Let me try to decipher this: two hedge funds acquire a failing retailer that a proven dollar store operator (Dollar Tree) only made worse after acquiring on already struggling dollar store competitor. And they expect the expertise of Nordin and MacNaughton coupled with the manner in which private equity firms usually try to build or resurrect acquisitions, to “reinvigorate” the business? Add in the possibility of significant tariffs, a huge factor in the sourcing of most of all dollar stores’ inventory, and you’ve got an even steeper hurdle to climb.
Even at a discount price and the potential of real estate assets being monetized, I wouldn’t go to the “$2 window” on this loser.
‘Round The Trade
It’s been more than seven years since Walmart began to invest most of its annual capital expenditures into building its digital and delivery network. This year the billions of dollars of previous (and continuing) funding will finally pay off. The “Behemoth” said that its e-commerce business will turn a profit for the first time in 2025. “This is a milestone for our company,” CFO John David Rainey told at the Walmart’s annual community meeting held in Dallas earlier this month.
Executive VP and chief e-commerce officer David Guggina added that black ink was achieved because of the company’s efficiencies and the fact that Walmart’s customers are willing to pay a premium for faster deliveries ($5 for a delivery in three hours; $10 to receive a delivery within 1 hour). More than 30 percent of all online driven deliveries fall into a faster delivery category. As for the planet’s largest merchant’s previous multi-billion-dollar investments which included building/converting most of its U.S. distribution centers to automation, more than 50 percent of all delivery orders are now served by automated DCs. These numbers alone make it even more clear that Amazon and Walmart are literally lapping most every other competitor in total industry market share.
Did I say Amazon? A month can’t go by without me mentioning news from “Godzilla.” As it has done since 1997 when former CEO (now chairman) Jeff Bezos penned an annual letter to Amazon’s shareholders, current chief executive Andy Jassy kept the tradition alive earlier this month by posting a missive of his own. Among the salient points the 57-year-old top gun made was stating that at Amazon’s highest level, “we’re aiming to be Earth’s most customer-centric company, making customers’ lives better and easier every day. This is not easy to do in general, let alone year after year. In fact, it’s actually quite hard, especially with the rapid rate of change in technology, customer habits, and new products from large and small companies alike. If we want to have a chance at succeeding in our mission, we have to constantly question everything around us.” Jassy also addressed the increasing importance of AI (which he claims will become less expensive in the near-term); price increases from pending tariffs and the company’s personnel reductions to lessen bureaucracy.
Less cryptic and more bullish was Jassy’s review of fiscal 2024’s financial performance: “Our total revenue grew 11 percent year-over-year (“YoY”) from $575B to $638B. By segment, North America revenue increased 10 percent YoY from $353B to $387B, International revenue grew 9 percent YoY from $131B to $143B, and AWS revenue increased 19 percent YoY, from $91B to $108B. For perspective, just 10 years ago, AWS revenue was $4.6B; and in that same year, Amazon’s total revenue was $89B. Amazon’s operating income in 2024 improved 86 percent YoY, from $36.9B (an operating margin of 6.4 percent) to $68.6B (an operating margin of 10.8 percent). Free Cash Flow, adjusted for equipment finance leases improved from $35.5B in 2023 to $36.2B.” In other words, “Godzilla” literally conquered the universe. For now.
Walgreens, which will go private when the $10 billion deal with private investment firm Sycamore Partners is finalized later this year, reported slightly improved Q2 earnings from the corresponding period last year. But that improvement should be taken in context since the Deerfield, IL-based drug merchant posted lost $2.85 billion as compared to $5.91 billion red ink posting a year ago. The results include a $4.2 billion write down in two key area for Walgreens – its VillageMD subsidiary and its retail pharmacy unit. Actually, sales at its retail pharmacy segment increased during the 13-week period with overall pharmacy revenue gaining 5.3 percent and comps rising 8.3 percent, primarily due to higher branded drug price inflation. Walgreens’ overall sales dipped 5.5 percent and comps declined 2.8 percent. Between Walgreens and Family Dollar which private equity firm will prove to have made the worst deal?
Local Notes
It’s been a busy month for Marlborough, MA-based BJ’s as the club operator opened one new store (in Whippany, NY on March 21) and gets ready to open another new unit on April 25 on Staten Island. The Whippany unit is the growing club merchant’s 25th in the Garden State. As for its new Staten Island unit, this store has been on the books since 2017, but environmental challenges have created years of delay. When the ribbon is finally cut later this month it will mark BJ’s 49th store in New York state. Along with c-stores and limited assortment discount units, club stores continue to be among the fastest growing and most successful channels in the grocery business. Club store pacesetter Costco has 29 new stores planned for this year and Sam’s Club plans on opening 15 new clubs in 2025.
Also debuting earlier this month was the 51,000 square foot replacement ShopRite supermarket in Watchung, NJ owned by Village Super Market. On May 9, Lidl will cut the ribbon on its Freehold, NJ.
Congratulations to The Giant Company’s Rebecca Lupfer, senior VP and chief merchant, on winning the company’s most prestigious “President’s Award.” She’s an excellent choice! For those who’ve interacted with the Central PA native, you quickly recognize that she’s extremely intelligent, maintains a tireless work ethic, and is a great team player. In her 20 years with TGC and Ahold USA, she’s worked in a variety of diverse and important jobs – merchandising, operations and finance – all with excellent results. At parent firm ADUSA, Ann Dozier has joined the big retail organization as its chief information officer where she will oversee all aspects of IT. A seasoned tech vet, Dozier most recently worked for Southern Glazer’s Wine and Spirits and has also received paychecks from grocery industry firms Coca-Cola, Dean Foods and Colgate-Palmolive.
Remember David McInerney? The former CEO of FreshDirect recently landed as president of Baldor Specialty Foods, the fresh and specialty foods distributor based in the Bronx. McInerney, who also co-founded the NYC e-grocer in 1999, left the company shortly after it was acquired by Ahold Delhaize in early 2021 (Ahold Delhaize subsequently sold FreshDirect to Turkish ultra-fast delivery firm Getir in 2023). In his new role, McInerney will oversee Baldor’s recent growth initiatives, focusing on supply chain management and food sourcing. He will report to Baldor CEO TJ Murphy.