Dollar Tree Abandons Family Dollar, Closing Chapter on Costly Merger

Dollar Tree has decided to part ways with Family Dollar, selling the struggling discount chain for $1 billion to private equity firms Brigade Capital Management and Macellum Capital Management.

The sale, which is pending regulatory approval, is expected to finalize in the next quarter. This decision comes nearly a decade after Dollar Tree purchased Family Dollar for $9 billion, marking the end of an expensive and troubled acquisition.

In a statement, Dollar Tree said that its leadership team and Board of Directors determined that selling Family Dollar was the best way to create value for shareholders while also giving Family Dollar an opportunity for future success.

However, the discount chain has faced major hurdles in recent years, including operational issues, increased competition, and rising costs due to inflation and tariffs.

Family Dollar, which has around 8,000 locations across the US, primarily serves low-income customers in urban areas with prices ranging from $1 to $10.

Despite initial hopes that merging the two chains would create a stronger competitor against rivals like Walmart and Dollar General, Family Dollar struggled under Dollar Tree's ownership. Many of its stores were poorly maintained, and some locations were too close to one another, leading to internal competition.

According to CBS News, retail analyst Neil Saunders called the sale a necessary move for Dollar Tree. "This closes the book on a sad and troubled chapter for Dollar Tree," Saunders said. "They bit off far more than they could chew."

Inflation and Tariffs Squeeze Family Dollar, Forcing Dollar Tree to Cut Ties

The decision to sell comes at a tough time for discount retailers. Inflation has significantly impacted Family Dollar's operating costs while also squeezing its core customer base.

Tariffs on imported goods, introduced during the Trump administration, added more pressure. Dollar Tree CEO Michael Creedon acknowledged these challenges, stating, "We continue to see value-seeking behavior across all customer groups. However, uncertainty and volatility from tariffs have affected operations."

Dollar Tree initially believed that acquiring Family Dollar would help expand its reach and boost profits, but the integration proved difficult.

Many Family Dollar stores required costly renovations, and early attempts to improve sales, such as selling beer, failed to make a significant impact.

In 2023, Family Dollar was also fined $41.6 million by the Justice Department for selling products stored in a rat-infested warehouse, further damaging its reputation, CNN said.

Beyond Family Dollar, the broader dollar store industry is struggling. Dollar Tree and Dollar General have reported slowing sales as low-income consumers cut back on spending.

The industry has also faced growing competition from Walmart and other major retailers. In 2024, discount chain 99 Cents Only filed for bankruptcy, highlighting the sector's financial struggles.

Despite these challenges, Dollar Tree remains focused on its core business. The company raised prices to $1.25 in 2021 after maintaining a $1 price point for decades, and it has been adjusting its product offerings to navigate supply chain and tariff-related issues.

Industry experts believe that selling Family Dollar will allow Dollar Tree to concentrate on strengthening its own brand.

Originally published on vcpost.com