Dollar Tree Just Sold Family Dollar for $1 Billion. Here Are the Details

Dollar Tree announced it is selling its Family Dollar business to private equity firms Brigade Capital Management and Macellum Capital Management for just over $1 billion. The deal, expected to close next quarter, marks the end of a challenging decade for Dollar Tree’s ownership of the Family Dollar brand. Let’s look at why this move is considered a significant shift for the retail industry.

Dollar Tree and Family Dollar: A Turbulent History

According to a press release, Dollar Tree is selling Family Dollar to two private equity groups for $1 billion, almost 10 years after purchasing the discount store for around $9 billion.

This move comes about a year after Dollar Tree said it would close hundreds of Family Dollar stores.

“This is a major milestone in our multi-year transformation journey to help us fully achieve our potential,” Mike Creedon, CEO of Dollar Tree, Inc., said in the press release announcing the sale. “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.”

“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,” said Matt Perkal, partner at Brigade. “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.”

Dollar Tree further stated that the sale to Brigade Capital Management and Macellum Capital Management would enable it to concentrate on its primary business after exploring alternative possibilities for Family Dollar for some time.

After a bidding battle with competitor Dollar General, Dollar Tree purchased Family Dollar for around $9 billion in 2015. According to analysts, Dollar Tree faced supply chain problems, bad store locations, and other operational challenges after purchasing the firm.

Last Year’s Selloff Speculation

Following the revelation that Family Dollar was “chronically underperforming,” Dollar Tree began exploring its options surrounding the brand last year, including a potential sale or spinoff, with J.P. Morgan Securities leading the review.

It was anticipated that the Family Dollar acquisition would assist the popular discount chain in cutting expenses to more effectively compete with other bargain stores like Walmart and Dollar General, which also placed a bid for the chain. However, the acquisition’s synergies fell short of expectations.

Targeting middle-class suburbanites, Dollar Tree specializes in seasonal décor and party favors. Family Dollar serves lower-income customers in urban and rural locations by providing more home goods, such as groceries and cleaning products. While Family Dollar offers a wide range of prices, Dollar Tree’s products are mostly priced at $1.25.

“Efforts to fix Family Dollar have been costly,” wrote the Financial Times in an article from March 2024. “Many stores were in poor shape, bad locations and suffered from logistics problems.”

Due to its emphasis on urban markets and a wider range of products, Family Dollar faced a more competitive pricing structure than the Dollar Tree banner, which performed better. The chain was likewise in bad shape at the time of the takeover.

Moreover, inflation and the cessation of government assistance during the COVID-19 pandemic have pressured Family Dollar’s lower-income clients. Family Dollar’s operating margins were a pitiful 1.1% in the first quarter of 2024, whereas those for Dollar Tree were 12.5%.

Despite all of this, however, Rick Dreiling, the company’s former CEO, remained confident in Family Dollar at the time.

“We have not lost faith in Family Dollar and the progress it’s making,” he said last year. “The team has done a great job of implementing many initiatives that are designed to drive the long-term growth. What we’re wrestling with and trying to figure out is we have two different brands at two different stages of where they’re at in their development. And while we want to accelerate Dollar Tree, we want to position Family Dollar’s transformation where it has the chance to grow.”