Dollar Tree is selling Family Dollar, ending its disastrous merger

New York (CNN) — Dollar Tree is ending its short-lived and ill-fated Family Dollar experiment, offloading the discount brand for $1 billion – just a fraction of its purchase price from a decade ago.

Family Dollar will be sold to private equity groups Brigade Capital Management and Macellum Capital Management, pending regulatory approval that is expected to clear next quarter. Dollar Tree bought Family dollar in 2015 for $9 billion.

“The Dollar Tree leadership team and Board of Directors determined that a sale of Family Dollar to Brigade and Macellum best unlocks value for Dollar Tree shareholders and positions Family Dollar for future success,” the company said in a statement.

Family Dollar has around 8,000 US stores, catering to low-income customers predominantly in cities with prices typically ranging from $1 to $10. The chain has struggled in recent years. Last year, Family Dollar announced plans to close more than 900 stores and was put up for sale.

Messy stores, high prices and over-expansion have plagued Family Dollar, analysts say. The chain has also faced steep competition from larger retailers, such as Walmart.

The sale of Family Dollar “closes the book on a sad and troubled chapter for Dollar Tree,” Neil Saunders, an analyst at GlobalData Retail, said in a note to clients Wednesday. “Dollar Tree bit off far more than it could chew.”

The sale comes at a difficult moment for Family Dollar and other dollar store chains. Inflation in recent years has increased Family Dollar’s operating costs and squeezed its lower-income customers. President Donald Trump’s tariffs on imported goods put a further put further pressure on dollar stores.

“We continue to see value seeking behavior across all customer groups,” Dollar Tree CEO Michael Creedon said on a call with analysts Wednesday. Dollar Tree caters to more middle-income customers than Family Dollar.

Tariffs have introduced “uncertainty and volatility,” Creedon said, but Dollar Tree is shifting its suppliers to try to mitigate the impact and considering raising prices.

Merger gone wrong

Dollar Tree believed acquiring Family Dollar would help it compete against bigger rivals. The combined company hoped that by joining forces it could grow its customer base, reduce costs and fend off Dollar General, which is located primarily in rural areas. Dollar General had also bid for Family Dollar.

But Dollar Tree misjudged the deal. The match between the two different chains was a poor fit, Wall Street analysts have said, and Dollar Tree has struggled to manage the larger Family Dollar store base.

Family Dollar stores were in worse condition than Dollar Tree management expected, and early strategies to improve sales, such as selling beer, fell short. Many Family Dollar stores were located too close to each other and cannibalized each other’s own sales.

A year later, an activist investor pushed for a sale of the “underperforming” Family Dollar business, and Family Dollar announced it would close hundreds of stores.

Even though Family Dollar has renovated thousands of stores in recent years, many are still poorly maintained, analysts say.

Family Dollar was hit with a record $41.6 million fine by the Justice Department last year for violating product safety standards after selling items that were stocked in a rat-infested warehouse in West Memphis filled with live, dead and decaying rodents.

Dollar store woes

It’s not just Family Dollar that has struggled — the entire dollar store industry has been under pressure in recent years.

Dollar Tree and Dollar General have hit trouble as low-income customers struggle to afford basic necessities and dial back their spending and competition from Walmart and other chains increases. 99 Cents Only filed for bankruptcy last year.

“Our customers continue to report that their financial situation has worsened over the last year as they have been negatively impacted by ongoing inflation,” Dollar General CEO Todd Vasos said on an earnings call Thursday. “Many of our customers report they only have enough money for basic essentials, with some noting that they have had to sacrifice even on the necessities.”

Many companies are noting a consumer slowdown across income levels because of inflation, tariffs and a wobbly stock market.

Tariff squeeze

Dollar Tree said last year that tariffs may lead it to alter some product specifications, change sizes or remove them from stores altogether if they become too costly. Dollar Tree may also raise prices from their current level of $1.25.

An estimated 40% of Dollar Tree’s sales are reliant on imported goods, leaving the retailer highly exposed to tariffs, according to KeyBanc Capital Markets analysis.

Dollar Tree may also raise prices to combat tariffs, joining a growing list of chains from Walmart to Best Buy that say that will hike prices to offset any impact.

In 2021, Dollar Tree raised base prices to $1.25 after 30 years of selling items for just a dollar. Dollar Tree also sells some products for up to $7.

This story has been updated with additional context and developments.

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