Dollar Tree’s decade-long effort to fold the Family Dollar chain into its business is ending after agreeing to sell the bargain store chain to a pair of private equity firms for $1 billion.
Dollar Tree Inc. bought Family Dollar with its over 7,000 stores ten years ago for more than $8 billion.
Neil Saunders, managing director of GlobalData, said that Dollar Tree struggled with supply chain issues, poor store locations and other operational difficulties ever since making the acquisition.
“Basically, Dollar Tree bit off far more than it could chew,” he said.
Last year Dollar Tree announced that it planned to close hundreds of Family Dollar stores.
Family Dollar carries a range of household staples, from food to laundry detergent. The stores are largely located in underserved, urban areas. Store closings that are underway, and those that may take place under new ownership, are likely to have an outsized impact on customers living in those areas.
Access to affordable, essential goods may become more challenging for lower income families as more Family Dollar stores close, said Marshal Cohen, chief industry advisor at Circana, a market research firm
“The lower income consumer will be losing a critical place to be able to purchase value products,” Cohen said. “They’re losing the breadth of the assortment and the depth of the discount and the convenience.”
The mom and pop stores found in such densely populated urban areas have less selection and prices are typically higher, Cohen said.
Dollar Tree had been scouting options for Family Dollar for a while and said Wednesday that the sale to Brigade Capital Management and Macellum Capital Management will allow it to focus on its core business.
“This is a major milestone in our multiyear transformation journey to help us fully achieve our potential,” said Mike Creedon, who was made permanent chief executive officer of Dollar Tree late last year.
During a conference call, Creedon noted how Dollar Tree and Family Dollar are “two different businesses with limited synergies.” The sale will now allow each one to concentrate on its specific needs, he added.
Dollar Tree, whose customer base is about 50% middle-income shoppers, are found in many suburban locations. Its shelves are more likely to feature seasonal goods, party supplies, crafts and snacks.
The sale will likely free Dollar Tree to focus on its core customers, Truist Securities analyst Scot Ciccarelli believes.
“Family Dollar turnaround efforts had been consuming massive amounts of both management focus and financial resources and now the company can focus all of its efforts toward growing and optimizing Dollar Tree,” he wrote in a client note.
