iStock.com/Althom
Dollar Tree recently reached an agreement to sell Family Dollar for just over $1 billion, throwing in the towel after acquiring the struggling chain 10 years ago for about $9 billion.
The private equity firms Brigade Capital Management and Macellum Capital Management are partnering to acquire Family Dollar. The deal is expected to close by June.
The Family Dollar acquisition was expected to help Dollar Tree expand its customer reach and reduce costs to better compete against bigger players, including Dollar General, Walmart, and Amazon.
Dollar Tree, which has about 8,900 stores, has more locations in suburban areas and caters to consumers with relatively higher incomes. Family Dollar, with about 7,600 locations, offers a wider range of items, from groceries to cleaning supplies, while catering to lower-income consumers in urban and rural areas. Dollar Tree’s products are priced at $1.25, while Family Dollar offers a wide price range.
Family Dollar has also been underperforming in recent years as its low-income customers have been squeezed by inflation and the end of pandemic-era government aid. The chain’s broader mix also led it to face more price competition than the better-performing Dollar Tree chain.
In 2023, Dollar Tree announced plans to close about 970 underperforming Family Dollar locations. Last June, Dollar Tree announced it was exploring plans to sell Family Dollar.
The separation will allow the Dollar Tree chain to expand and build on the early success it’s having in upgrading stores to handle items priced as high as $7, which is helping extend its customer reach. This past year, Dollar Tree opened 525 stores, including acquiring 170 leases of 99 Cents Only Stores, and it expects to open about 300 in 2025.
Mike Creedon, CEO of Dollar Tree, said on a Mar. 26 analyst call, “Dollar Tree and Family Dollar are two different businesses with limited synergies, and each is at a very different stage of its journey. Separating them will enable each banner to be led and managed by a dedicated team that can focus exclusively on that banner's distinct needs and on realizing each banner's full potential. Separating will also enable investors to own a business they value more without also having to own a business they value less or that may not fit in their investment profile It should also make it easier for the market to properly value each business.”