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.
Bargain chains like Dollar Tree, which have raised some of their prices in recent years, are finding that they have little room to maneuver. Americans have tightened their spending as consumer confidence in the economy slides.
Family Dollar, which moved its headquarters from North Carolina to Chesapeake, Virginia, after the sale to Dollar Tree, will maintain its headquarters in Virginia.
Saunders said Brigade and Macellum have to fix several issues at Family Dollar, including pricing that isn’t as sharp as many of its rivals and a customer base that isn’t as loyal.
The deal is expected to close later in the second quarter.
Arun Sundaram, an analyst with CFRA Research, said in a client note that the Family Dollar sale is the right move for Dollar Tree, which has historically generated stronger sales, profitability and cash flow.
But Sundaram cautioned that Dollar Tree has increased exposure to tariff risks due to its higher concentration in general merchandise categories than Family Dollar.
While about half of the chain’s customer base is middle income shoppers, Creedon said that higher-income customers in store aisles are becoming more frequent.
“We are seeing stronger demand from higher income customers who increasingly see Dollar Tree as a cost effective source for an expanding range of products,” he said.
Creedon said Dollar Tree has taken steps like negotiating cost concessions and diversifying where it imports goods from to mitigate more than 90% of the impact of the Trump administration’s 10% tariff on Chinese imports announced last month. That tariff would have cost the company $15-$20 million monthly, Creedon said.
Another 10% tariff on goods from China that was announced this month, along with 25% tariffs on Canada and Mexico, would potentially have about another $20 million monthly impact. Creedon said it’s working to mitigate the impact of the latest round of tariffs, which aren’t reflected in Dollar Tree’s 2025 outlook.
Shares of Dollar Tree rose 3% Wednesday.
The Associated Press contributed to this report.