Dollar Tree to Sell Family Dollar for $1 Billion, Ending Struggling Merger

Dollar Tree has decided to part ways with its struggling discount chain, Family Dollar, selling the brand to private equity firms Brigade Capital Management and Macellum Capital Management for $1 billion. This decision marks a significant retreat for Dollar Tree, which purchased Family Dollar for $9 billion just a decade ago, according to CNN.

The deal, which is expected to receive regulatory approval by next quarter, will see Family Dollar—operating approximately 8,000 stores across the U.S.—handed over to new ownership. The brand primarily serves low-income customers in urban areas, with prices typically ranging from $1 to $10. Despite its reach, Family Dollar has faced a series of challenges in recent years, including store closures, management difficulties, and stiff competition from larger retailers like Walmart.

In a statement, Dollar Tree explained that the sale of Family Dollar was the best course of action to “unlock value” for shareholders and set the brand on a path for future success. “The Dollar Tree leadership team and Board of Directors determined that a sale of Family Dollar to Brigade and Macellum best unlocks value for Dollar Tree shareholders and positions Family Dollar for future success,” the company stated.

The move marks the end of a disappointing chapter for Dollar Tree. Analysts have pointed to Family Dollar’s operational struggles as a key reason behind the poor fit between the two chains. Neil Saunders, an analyst at GlobalData Retail, called the decision a necessary one, describing it as the “close[ing] of a sad and troubled chapter” for the company. He added that Dollar Tree “bit off far more than it could chew” with its Family Dollar acquisition, which has been burdened with issues like messy stores, high prices, and over-expansion.

Since its acquisition, Family Dollar has been beset by issues, including poor store conditions and over-expansion. In fact, last year the company announced it would close over 900 stores and put itself up for sale. Despite efforts to renovate thousands of stores, many remain poorly maintained, according to analysts. Family Dollar’s difficulties were compounded in 2023 when the U.S. Department of Justice imposed a $41.6 million fine after the company sold goods from a rat-infested warehouse in West Memphis, Arkansas.

The challenges facing Family Dollar come as part of a wider struggle for the dollar store industry. As inflation continues to impact low-income consumers, sales at both Dollar Tree and Dollar General have been squeezed. “Our customers continue to report that their financial situation has worsened over the last year as they have been negatively impacted by ongoing inflation,” Dollar General CEO Todd Vasos told analysts last Thursday.

Additionally, tariffs imposed during the Trump administration have placed further pressure on the dollar store sector, forcing companies like Dollar Tree to adjust their strategies. Dollar Tree CEO Michael Creedon acknowledged the impact of tariffs on the company’s supply chain, stating that the company is considering price hikes and shifting suppliers to mitigate rising costs. According to CNN, tariffs now account for significant price increases, especially since around 40% of Dollar Tree’s sales come from imported goods.

While Dollar Tree shifts focus to its own operations, it remains committed to supporting middle-income customers through its stores, which are less reliant on low-income customers than Family Dollar’s outlets. Per CNN, the sale of Family Dollar is seen as a necessary adjustment to better navigate both internal operational challenges and the broader economic pressures facing the retail sector.

The upcoming transaction will put an end to a deal that analysts have described as a miscalculation by Dollar Tree’s leadership. The combination of the two chains, which was initially hoped to create a stronger competitor against larger rivals, instead exposed key weaknesses in the operational strategies of both brands.

Source: CNN