Dollar Tree Considers Selling Family Dollar After Struggling Merger

Dollar Tree announced on Wednesday that it is considering selling or spinning off its Family Dollar chain, nearly a decade after acquiring the brand in a merger that has faced numerous challenges.

Family Dollar, which operates around 8,000 stores across the United States, primarily serves low-income customers in urban areas with prices ranging from $1 to $10. However, the chain has faced significant difficulties, leading to the closure of more than 900 stores last year.

Dollar Tree CEO Rick Dreiling attributed the potential separation to the “unique needs” of the two distinct brands. While Dollar Tree focuses on middle-income consumers in suburban locations, Family Dollar targets lower-income customers in urban settings.

Analysts have pointed to several issues plaguing Family Dollar, including untidy stores, high prices, and over-expansion. The chain has also struggled to compete with larger retailers like Walmart and Dollar General, and inflation has further increased operating costs while impacting its customer base.

Neil Saunders, an analyst at GlobalData Retail, described Family Dollar as a “problematic business” that has hindered Dollar Tree’s overall performance. Despite a slight increase in sales at stores open for at least a year, the chain’s struggles have persisted.

Family Dollar’s acquisition by Dollar Tree in 2015 for $8.5 billion was intended to enhance competitiveness against larger rivals. However, the merger has been fraught with challenges, including mismanagement and underestimation of the condition of Family Dollar stores. Strategies to boost sales, such as introducing beer, have largely failed.

The proximity of many Family Dollar stores has also led to self-cannibalization, further complicating the chain’s performance. Efforts to renovate thousands of stores have not fully addressed the issues, and some locations remain poorly maintained.

Earlier this year, Family Dollar faced a record $41.6 million fine from the Justice Department for violating product safety standards, following the discovery of a rat-infested warehouse in West Memphis.

As Dollar Tree explores its options for Family Dollar, the company’s stock fell 3% in premarket trading, highlighting investor concerns over the ongoing challenges associated with the merger.