TIME Business

Dollar Tree Buying Family Dollar for $8.5 Billion

A Dollar Tree store in Westminster, Colo., on Feb. 26, 2014.
A Dollar Tree store in Westminster, Colo., on Feb. 26, 2014. Rick Wilking—Reuters

(NEW YORK) — Dollar Tree is buying rival discount store Family Dollar in a cash-and-stock deal valued at about $8.5 billion.

Stockholders of Family Dollar Stores will receive $59.60 in cash and the equivalent of $14.90 in shares of Dollar Tree for each share they own. The companies put the value of the transaction at $74.50 per share, which is an approximately 23 percent premium to Family Dollar’s Friday closing price of $60.66.

Family Dollar stockholders will own somewhere between 12.7 percent and 15.1 percent of Dollar Tree’s outstanding common shares at closing.

Core customers for bargain stores and major retailers like Wal-Mart have been among the hardest hit by the recession and its aftermath because of job instability.

Family Dollar has struggled and has attempted to reinvigorate sales by lowering prices on almost 1,000 basic items. It’s cut some jobs and shuttered underperforming stores. The company had been conducting a strategic review since the winter, and investor Carl Icahn urged Family Dollar last month to put itself up for sale.

Dollar Tree CEO Bob Sasser said Monday that the deal will give Dollar Tree more than 13,000 stores in the U.S. and Canada. That is nearly three times as many stores as Wal-Mart Stores Inc., though Wal-Mart’s square footage is still greater.

The combined Dollar Tree-Family Dollar chain will have sales of more than $18 billion and Sasser says that the transaction will create a more diverse company with an enhanced geographic reach.

Dollar Tree stores sell products for $1 or less, while Family Dollar’s pricing is much broader.

Dollar Tree will continue to operate under the existing Dollar Tree, Deals, and Dollar Tree Canada store signs. It will keep the Family Dollar brand as well.

Family Dollar Chairman and CEO Howard Levine will still lead those stores and report to Sasser. He will join Dollar Tree’s board.

Dollar Tree plans to finance the deal with available cash, bank debt and bonds.

The boards of both companies have unanimously approved the deal, which is expected to close by early next year. It still needs approval from Family Dollar shareholders.

Shares of Family Dollar Stores Inc., based in Charlotte, North Carolina, surged more than 21 percent before the opening bell. Shares of Dollar Tree Inc., based in Chesapeake, Virginia, are up more than 3 percent.

TIME Companies

Walmart’s Head of U.S. Operations Will Step Down After Slump in Sales

A sign lists the current Walmart stock price at a Walmart Supercenter in Bentonville
A sign lists the current Walmart stock price at the Walmart Supercenter in Bentonville, Ark., on June 5, 2014 Rick Wilking — Reuters

His replacement has quickly ascended the ranks of the company's operations in Asia in recent years

Walmart announced on Thursday that Bill Simon, the president of its operations in the U.S., will leave the company next month after four years of leadership marked most recently by a decline in sales. Greg Foran, the New Zealand–born executive who just last month assumed his role as head of Walmart Asia, will take over from Simon from Aug. 9.

“Being asked to lead the Walmart U.S. business is a privilege that I don’t take lightly,” Foran said in a company statement. “I am excited to get started. The needs of our customers are changing dramatically, and we have an enormous opportunity to serve them in new and different ways.”

Foran will assume office at a time of uncertainty for the corporation, with five quarters of falling sales in the rearview mirror despite a recent surge in U.S. consumer confidence. A market analyst told Reuters that Walmart CEO Doug McMillon “wanted new blood” in the company to facilitate its efforts in online retail and general rebranding. Foran has been a rising star in Walmart: he left his position as Woolworths’ head of supermarkets in 2011 to take the reins of Walmart’s fledgling China project and was promoted to oversee the company’s expansion in Asia.

TIME Retail

Walmart Managers Average Salary Higher Than Starbucks

Wal-Mart Associate Jeff Parker stocks produce at store #100 in Bentonville, Arkansas on July 2, 2003.
Wal-Mart Associate Jeff Parker stocks produce at store #100 in Bentonville, Arkansas on July 2, 2003. Reuters

Their cashiers, however, make less than the national average of $11.22/hour

Walmart may often get criticized for not paying its workers a living wage, but according to a new working paper, climbing the corporate ladder within the chain can lead to substantial income. In fact, the National Bureau of Economic Research found, Walmart store managers make an average salary of $92,462 per year.

The authors of the new working paper used data from career site Glassdoor and the Census Bureau’s Current Population Survey to analyze and compare average salaries of employees at some of the U.S.’s largest retail chains including Walmart, Costco, Whole Foods, and Starbucks. According to the analysis, Walmart store managers are among the highest paid in the nation, with Costco leading the pack with average manager salaries of $109,000. At Starbucks and Whole Foods, store managers bring home on average $44,632 and $75,775, respectively.

However, while store manager pay ranks high, according to NBER, Walmart cashiers earn about $8.48/hour and are paid less than their counterparts at the other chains. At Starbucks, “baristas” make $8.80 an hour, on average, while those at Whole Foods and Costco make $10.31 and $11.59. Cashiers at three out of four of the retailers make less than the average national hourly cashier rate of $11.22/hour.

The paper also shows a significant gender gap, even among cashiers. While high school educated women in retail make 25% less than their male counterparts, women cashiers make 17% less. Among those with some college education, women make 20% and 21% less than men when they have a high school education and some college, respectively.

TIME Retail

Here’s Why Barbie Is Having a Pretty Rough Month

The Biggest Barbie Collection Auctioned At Christies
Chris Jackson—Getty Images

World’s largest toy maker posts 61% drop in second-quarter profit as demand also falls for Fisher-Price and Hot Wheels brands

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This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published atFortune.com.

Mattel’s iconic Barbie doll joined the popular social-network site LinkedIn this year and even appeared in a Sports Illustrated campaign, but both marketing ploys weren’t enough to drive sales in the latest quarter.

The world’s largest toy maker posted a sharp 61% drop in second-quarter profit as Barbie posted another sales decline and demand also fell for the well-established Fisher-Price and Hot Wheels brands. Results badly missed Wall Street’s expectations for the quarter, hurt by sales weakness across almost all categories.

But the sales woes for Barbie, which have plagued Mattel MAT -0.71% the past few years, are especially problematic. Barbie’s global sales slumped 15% in the latest quarter.

Worldwide sales of Mattel’s preschool Fisher-Price brands slid 17%, while Hot Wheels sales dropped 2%. The pricier American Girl doll segment was the lone bright spot, with sales rising 6%.

For the rest of the story, go to Fortune.com.

TIME Retail

Amazon Charges a Penny After France Bans Free Shipping

Booksellers On The Banks Of The Seine Opposite The Ile De La Cite In Paris, France In February, 2006 -
Booksellers on the banks of the Seine opposite the Ile de la Cite in Paris, France in February, 2006. Elise Hardy—Gamma-Rapho / Getty Images

'Okay, we'll charge one cent'

Amazon thumbed its nose at a French ban on free shipping of book orders, agreeing to raise the shipping price to exactly $0.01 Euros, or a single penny.

France24 reports that Amazon’s move comes one month after the ban sailed through France’s National Assembly. Lawmakers argued that the nation’s roughly 3,500 bookstores needed protection from online competitors, whom they accused of “dumping” books on the market at a loss.

“We are unfortunately no longer allowed to offer free deliveries for book orders,” Amazon explained in an FAQ to shoppers, who might reasonably wonder why the company would bother to charge one cent. “We have therefore fixed delivery costs at one centime per order containing books and dispatched by Amazon to systematically guarantee the lowest price for your book orders.”

The free shipping ban was passed as an amendment to a 1981 law that also attempted to curb competition between booksellers by capping discounts on new books at 5%.

[France24]

TIME fashion

J. Crew Introduces a Size Smaller Than XXS

J. Crew Shopping Bag
A women holds a J. Crew shopping bag. Bloomberg—Bloomberg/Getty Images

It's for those with a 23 inch waist

You know how it is when you’re in a dressing room and even the smallest size available is still too baggy? What, that’s never happened to you? Well, just in case you know someone who is too small for a XXS or ’00,’ J. Crew has introduced a new ‘000’ size for women with a 30.5″ bust and a mere 23″ waist. What does someone with a waist that small look like? Probably a little like Keira Knightly who is famous for her waspy middle. Or burlesque star Dita von Teese who says she’s been wearing a corset for decades to keep her 22-inch waist as she ages.

However, the retailer has received some criticism for introducing the triple zero or ‘XXXS’ size. “J.Crew’s vanity sizing has reached a whole new level of crazy,” wrote the fashion blog Racked. “What’s next, negative numbers?” But is a triple zero really that much smaller than a regular ‘0’? After all, a ’00’ or a ‘0’ can range from a 22′ to a 25′ inch waist depending on the brand. And the fashion industry has long been accused of vanity sizing, a downwards trend in size numbers in recent decades despite the average woman becoming heavier over the same time period. According to the 2003 SizeUSA study, the average woman is about 5’4″ and 150 pounds, which is 20 pounds heavier than 40 years ago.

“According to standard size measurements, that average 155 pound woman should be wearing a size 16, but thanks to vanity-sizing, she’s probably buying a size 10 or 12,” Jim Lovejoy, the industry director for the SizeUSA survey, told Newsweek. “Most companies aren’t using the standard ASTM [American Society for Testing and Materials] sizes any more. Sizes have been creeping up a half inch at a time so that women can fit into smaller sizes and feel good about it.”

But J. Crew insists that the new ‘000’ size has nothing to do with vanity. “We are simply addressing the demand coming from Asia for smaller sizes than what we had carried,” a J. Crew spokesperson told Today. “Our sizes typically run big and the Asia market tends to run small.” And it’s true that all that vanity sizing has left the truly small out in the cold and not just in Asia. Nicole Miller introduced a size 0 (25½-inch waist) about 15 years ago because the company had a strong presence in California there was lots of demand from their Asian customers for something smaller.

In the meantime, we’ve all gotten used to the idea of a size zero—and thanks to vanity sizing more of us can fit into one. Even the double zero doesn’t look as strange as it used to. So who knows, maybe sizes will keep creeping into the negative side of the number line and we’ll all be some kind of zero.

TIME Retail

IKEA Is Going to Raise Minimum Wages in All its U.S. Stores

Contractors work on construction of a new IKEA store in Miami, May 20, 2014.
Contractors work on construction of a new IKEA store in Miami, May 20, 2014. Christina Mendenhall—Bloomberg/Getty Images

IKEA will use MIT's Living Wage Calculator to calculate minimum earnings for staff, leading to an average 17% hike

IKEA, the world’s largest furniture retailer, plans to raise the minimum wage in all of its U.S. stores by using MIT’s Living Wage Calculator, which estimates the base pay needed to survive in a particular city – a move that could set a new standard expected for major retailers.

Huffington Post quotes Rob Olson, the chief financial officer of IKEA U.S., as saying that the average store minimum wage will increase by 17% to $10.76 per hour on Jan. 1. Employees at each of the 38 stores will have a different base salary depending on the cost of living in the city they’re in, ranging from $9-$13 per hour. Olson notes that the average minimum wage at U.S. stores will be $3.51 higher than the current federal minimum wage, which is $7.25 per hour. “It’s all centered around the Ikea vision, which is to create a better everyday life for the many people,” Olson told the Huffington Post.

The move is only the most recent illustration of divided stances on minimum wage reform. The heated national debate has been marked by protests waged by McDonald’s workers demanding higher pay. Meanwhile, Seattle voted to raise its minimum wage to $15 an hour in May — the highest minimum wage in the country. The International Franchise Association opposed the decision, calling it “unfair and discriminatory minimum wage plan,” according to the Washington Post. Barack Obama has been a proponent of higher minimum wages, reflected in a decision to hike the minimum wage for federal contractors up to $10.10—a move that he suggested should be adopted throughout the country.

Although other companies such as Gap Inc., have vowed to raise the base pay for stores nationwide, IKEA is the first major retailer to use a living wage calculator when setting salaries. Olson says that the new base pay salary is meant to be a selling point to recruit more talented employees, according to the Washington Post. While IKEA’s new minimum wage hike could sharpen the company’s image, it’s perhaps a greater sign to other companies of an impending trend in the workplace.

TIME Retail

Barnes & Noble Splitting E-Reader Into Separate Business

The nation's last big player in the brick-and-mortar book business is splitting off its digital side

Barnes & Noble is splitting its digital Nook enterprise off from its physical bookstore business, abandoning what analysts once saw as the company’s best chance of surviving competition from the likes of Amazon, which sells books, digital e-readers and a plethora of other goods and services.

The spinoff of the company’s Nook business will be complete by the end of the first quarter of the next calendar year, Barnes & Noble said in a statement.

Barnes & Noble’s Nook business was a latecomer, introduced in 2009 two years after Amazon introduced its first Kindle reader. Barnes & Noble’s brick-and-mortar bookstore businesses is still profitable; its retail segment saw a 0.8% increase in revenue to $955.6 million for the quarter.

But the Nook has dragged on the company’s revenue as the device posted a 22% decline in revenue to $87 million in the last quarter. The company as a whole posted a loss of $36.7 million in the same quarter.

The two new companies are called Barnes & Noble Retail and Nook Media.

“We believe we are now in a better position to begin in earnest those steps necessary to accomplish a separation of Nook Media and Barnes & Noble Retail,” said CEO Michael Huseby in a statement. “We have determined that these businesses will have the best chance of optimizing shareholder value if they are capitalized and operated separately.”

Borders bookstore applied for bankruptcy in 2011 and later folded into Barnes & Noble, leaving only one remaining massive physical bookstore chain left in the United States.

The Barnes & Noble split is an indication that the bookstore’s foray into digitization hasn’t succeeded after William Lynch, the prime proponent of the Nook, resigned as CEO last year.

Barnes & Noble’s stock was up more than 5% to $21.70 around noon eastern time on the day the news was announced.

TIME Retail

Whole Foods Must Pay $800,000 for Overcharging Customers

A customer carries shopping bags outside of a Whole Foods in El Segundo, Calif., Nov. 5, 2013.
A customer carries shopping bags outside of a Whole Foods in El Segundo, Calif., Nov. 5, 2013. Bloomberg/Getty Images

The grocery chain was finagling prices across its California locations, according to the Los Angeles Attorney's office

A year-long investigation into Whole Foods Markets for overcharging customers in California has uncovered widespread pricing violations, officials said Tuesday, and will result in an $800,000 settlement for the grocery chain.

Inspectors found that Whole Foods was charging more than the advertised price for a variety of food items, according to the Los Angeles City Attorney Mike Feuer.

Locations often employed tactics like adding the weight of containers when charging for food at the salad bar and hot bar, or including less than the weight advertised for items sold by the pound.

“We’re taking action to assure consumers get what they pay for,” Feuer said in a statement. “No consumer should ever be overcharged by their local market.”

Whole Foods agreed to appoint two officials to oversee pricing accuracy throughout California and assign one employee in each store to oversee how much it is charging customers.

The chain’s $800,000 penalty will be divided out into $630,000 in civil penalties, $100,000 to a statewide consumer protection trust fund, and $68,394 in investigative costs, Feuer said.

Whole Foods said in a statement that its pricing was accurate 98 percent of the time, Reuters reports. “We will continue to refine and implement additional processes to minimize such errors going forward,” it said.

 

MONEY Pick from a Pro

A Middle Class Retailer that’s Actually Thriving

TJ Maxx store
TJ Maxx is now bigger and more valuable than even Target. Tim Boyle—Bloomberg via Getty Images

While discounters such as Target are feeling squeezed, TJX Companies, which runs T.J. Maxx, Marshalls and HomeGoods, is finding success with its own version of cheap chic.

The Pro: John Crowley, co-manager of the Eaton Vance Focused Value Opportunities fund (Ticker: EAFVX).

The Fund: Eaton Vance Focused Value Opportunities is a concentrated portfolio that only invests in around 30 value-oriented blue chip stocks. The fund has beaten around two-thirds of its peers over the past one and three years, according to Morningstar.

The Pick: TJX Companies

The Case: TJX, the retailer behind bargain behemoths such as T.J. Maxx, Marshalls and HomeGoods, is a different type of discounter. The company not only gets brand-name apparel and home decor directly from manufacturers (in some cases buying cancelled orders and overruns), it also buys from wholesalers and other retailers looking to move excess inventory at discounted prices. The combination of high-end brands—think Diane Von Furstenberg tops and Helmut Lang sweaters—coupled with bargain-basement prices makes the company appealing in both favorable and unfavorable economic conditions.

That’s certainly been the case in recent years, as revenue growth at TJX has far exceeded that of other big retailers in recent years, including Target , Walmart , and Macy’s .

TJX Revenue (Annual YoY Growth) Chart

TJX Revenue (Annual YoY Growth) data by YCharts

Strategy:

Crowley says the company owes its success in large part to its smart, sturdy business model, selling heavily discounted brand name apparel and home decor. The off-price retail model is hardly new. Its roots date back to the old Filene’s Basement, and you can see traces of it in online retailers such as Overstock.com . What is rare is TJX’s ability to pull it off on such a grand scale. The company has more than 3,200 stores globally, versus fewer than 2,000 for Target.

Plus it’s no easy feat to generate returns on par with TJX, says Crowley. For instance, Crowley points out that TJX’s return on equity—which is a popular gauge of measuring a business’s profitability and efficiency—is over 50%. That compares favorably to the 16% average ROE for companies in the S&P 500.

It also compares favorably to other retailers:

TJX Return on Equity (Annual) Chart

TJX Return on Equity (Annual) data by YCharts

Speed:

One possible downside to the way TJX sources its merchandise is that clothes sometimes come in limited quantities, colors or sizes. Yet the company has managed to turn this into an advantage. Limited inventory means merchandise moves through TJX stores rather quickly. In many cases racks of clothes are even put on wheels.

The chart below shows just how much faster inventory churns at TJX than at Macy’s, Kohl’s, and J.C. Penny’s.

TJX Inventory Turnover (Annual) Chart

TJX Inventory Turnover (Annual) data by YCharts

“The merchandise turns over so quickly that it keeps the traffic and sales moving,” says Crowley. It also creates a “kind of a treasure hunt mentality,” he adds. Indeed, bargain-hunters know they’re likely to find something new with every visit — and if they don’t move fast to purchase, they could miss a deal.

Online, T.J. Maxx replicates the same feeling of urgency and treasure hunting for customers. Items almost out of stock are labeled with a bold red “almost gone” sticker. And for high-end designer items, shoppers can click a “reveal designer” button that adds a touch of drama to the moment where you uncover that that $499 leather purse is Gucci, or those $629 platforms are Jimmy Choo.

Scale:

TJX has enormous reach, buying from 16,000-plus manufacturers in more than 75 countries. Its closest true competitor, Ross Stores , is five times smaller.

Scale is important, especially for future earnings growth. TJX has more than 3,200 stores in the U.S., Canada and Europe. Of those, only about 370 are in Europe, where Crowley sees particularly strong growth potential. “They will continue to grow as their value proposition resonates loudly and more clearly over there,” says Crowley.

And as TJX gains traction overseas, its business model could work in more varied international markets like Latin America and Asia, says Crowley.

True, TJX stock reflects that potential, as the stock’s price/earnings ratio is around 18.5, versus 17 for Ross.

The company’s earnings, though, are growing faster than many of its rivals, as are its dividends. Crowley notes that TJX has boosted its dividends by an average of 22% annually for the past five years.

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