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7/31/2014 @ 10:52AM |11.691 views
Will A Dollar Store Mega Merger Usher In The Post-Walmart Retail Era?
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Are we entering the post-Wal-Mart era in retailing?
The retail industry has roiled through its share of mega-mergers — The May Department Stores Co. andFederated Department Stores (now Macy’s), Sears and Kmart.
But the factors underlying a potential Dollar Tree DLTR +1.1%/Family Dollar union seem particularly charged with import.
Dollar Tree Poised To Become $18 Billion Power RetailerLaura HellerContributor
Dollar Tree set plans this week to acquire competitor Family Dollar for $8.5 billion in a deal that could shake up a retail sector that’s beendisproportionately dominated by a single player: Walmart, the world’s biggest retailer.
It’s not just that the combined chain will boast 13,000 stores, about 8,000 more U.S. stores than Walmart. The dollar store concept, which experienced a boon during the Great Recession, plays into a burgeoning shift in consumers’ shopping patterns and preferences.

The merger of Dollar Tree and Family Dollar wouldcreate a chain with more U.S. stores than Walmart.
The convenience of small-format stores with an edited mix are gaining popularity, just as football-field style shopping in big box stores a la Walmart’s supercenter format, appear to be losing their appeal.
“What’s Wal-Mart’s additional brand promise beyond just low prices? Their [mammoth] selection comes with the cost of navigating stores, and thewhole hassle of the big-box experience is less of a compelling proposition these days,” Russ Meyer global director of branding firm Siegel+Gale, told Forbes.
With the combination of Dollar Tree and Family Dollar, “suddenly you’ve got a pretty compelling-footprint brand that is essentially offering the same fundamental low prices as Walmart, but an additional convenience in terms of shopping andlocation.”
Indeed, dollar stores are typically situated closer to where shoppers live than Walmart, for one.
What’s more, a combined Dollar Tree/Family Dollar would leverage economies of scale that would grant the retailer purchasing power with vendors “that can suddenly get prices lower than they have in the past,” he said.
“Dollar Tree expects to realize the synergies, which amount to about 2% ofsales, due to sourcing and procurement; distribution and logistics; and leverage of selling, general, and administrative expenses,” said Ken Perkins, aMorningstar MORN -0.21% analyst, in a research note. “We think these targets are achievable given the benefits to establishing regional density with a small-store format, but given that other firms could also realize synergies in similar areas, wewouldn’t be surprised to see firms such as Dollar General DG +0.64%offer competing bids.”
Rebranding Under One Mega, Dollar Store Nameplate? 
A dollar store merger could also make Walmart more vulnerable to losing market share of a key demographic.
“Lower income, rural shoppers have traditionally been a pretty strong customer segment for Walmart,” Meyer said. “If shoppers feel that Dollar Tree orFamily Dollar is more right for them, Walmart might find that a whole customer segment gets carved off from their stores.”
But the chains would more fully reap the benefits of economies of scale and clout with suppliers if they consolidated as a single brand under one nameplate, with one merchandising team and advertising budget, Meyer said
Dollar Tree’s stated plan is to retain Dollar Tree andFamily Dollar as separate nameplates. But in retailing, these initial pronouncements have been known to change.
In a bid to create “America’s department store” in 2004, Terry Lundgren, CEO of Federated Department Stores (now Macy’s), initially hyphenated its regional department store names such as Burdines and Bon Marche, with Macy's M +2.45%, only to later drop the local nameplates altogether and...