A consortium of private equity investors, including Brigade Capital Management and Macellum Capital Management, has agreed to purchase the Family Dollar chain for $1 billion. This transaction represents a significant financial loss for Dollar Tree, which acquired Family Dollar approximately a decade ago for around $9 billion. As a result of this sale, the nearly 7,000 Family Dollar stores will be transferred to the new ownership, effectively reducing by half the number of stores that Dollar Tree manages.
The acquisition of Family Dollar by Dollar Tree in 2015 was initially aimed at outcompeting Dollar General and solidifying Dollar Tree’s position as a leading discount retailer. However, Dollar Tree encountered unforeseen challenges, including poorly maintained store properties and a customer demographic distinct from its own. Family Dollar caters primarily to lower-income consumers by offering a variety of household products at varied low prices. In contrast, Dollar Tree’s clientele generally consists of individuals with higher incomes purchasing mainly craft and party supplies, typically priced around one dollar.
Proximity between stores of both brands often led to an overlap in customer traffic, creating internal competition. Additionally, the stores faced formidable competition from major retailers such as Amazon and Walmart. Compounding these difficulties, the Justice Department imposed a substantial fine of $41.6 million on Family Dollar for distributing goods from a West Memphis warehouse infested with both live and deceased rats.
Following the divestiture of Family Dollar, Dollar Tree announced that it has been expanding its market share among higher-income customers and is considering price adjustments at certain stores to counterbalance the impact of tariffs implemented by President Trump. In 2021, Dollar Tree increased its standard price point to $1.25 with the intention of expanding the variety of products offered to customers.
The report was authored by Matty Merritt and initially published by Morning Brew. Further details of this story can be found on Fortune.com.
