Why Dollar Tree Might Say Goodbye to Family Dollar

One of America’s biggest variety chains is considering a sale of the iconic brand it acquired almost ten years ago.

Ten Years of Ownership

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In 2015, the discount variety store chain Dollar Tree purchased its competitor Family Dollar in a whopping $9.5 million deal, edging out competition from its fellow major discount chain Dollar General. 

Time to Let Go?

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Now, almost ten years later, Dollar Tree is considering letting go of the company it fought so hard to acquire. 

Major Underperformer

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Since its purchase Family Dollar stores have been a major underperformer for the brand. Earlier this year, the company announced its plans to shutter a whopping 970 stores under the Family Dollar brand over the next few years. 

Potential Sale or Spin-Off

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So it was hardly surprising when, on Wednesday, the company announced that it is now considering “a potential sale, spin-off or other disposition” of the Family Dollar chain.

Throwing in the Towel

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“After almost 10 years of trying to make the Family Dollar acquisition work, Dollar Tree has seemingly thrown in the towel,” said Neil Saunders, the manager of data analytics and consulting company GlobalData.

A Failure to Deliver

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“The Family Dollar business just isn’t delivering the growth and profit needed, and the amount of work required to bring it up to scratch is considerable,” he continued. “Dollar Tree has figured that it is better off selling or spinning off the Family Dollar business so that it can concentrate on its core operation which is performing much better.”

A Big Loss 

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Saunders also confirmed that the company would see huge losses from the initial acquisition, as they would not be able to sell Family Dollar for any amount approaching the original $9.5 billion price tag.

Ongoing Problems

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The company has been battling flagging demand and reduced customer spending amid the strain of long-term inflation. Now, it is looking to restructure its business to keep the company afloat – and dropping Family Dollar may be just what it needs.

Increasing Competition

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It has also seen massive competition in the discount variety retail industry, particularly through Walmart and online e-commerce platform Temu, which has soared to international popularity in the last 2 years. 

Minimal Profit Made

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While the company’s revenue had grown by 4% in the last quarter, it made very little profit, with a difference of only $1 million over its $299 million profit in the last quarter of 2023.

Not the Only Problem

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And stagnant growth is far from the only issue the company has faced in recent years. In 2022 Dollar Tree received a raft of bad publicity after a warehouse had to be shut down due to a rat infestation.

Warehouse Infestation

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A damning safety alert was then declared by the US Food and Drug Administration, leading to the recall of goods in six states and the temporary closure of 400 Family Dollar stores.

Letting Both Brands Reach Their True Potential

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In a call with market analysts, Dollar Tree CEO Rick Dreiling explained that “Separating the two businesses could enhance the performance of each one individually and allow them both to reach their true valuation potential.” 

Two Separate Entities

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He also described the two brands as being separate entities with their own unique needs and at different stages in their corporate evolution.

16,000 Stores

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Dollar Tree currently operates 16,397 stores across the US and select parts of Canada, with 7,300 of those being Family Dollar stores. If a deal were to go through, the company would lose almost half of its stores that are still in operation.

No Decisions Made Yet

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However, Dollar Tree has reminded people that no concrete decisions have been made. It is currently in the process of reviewing its portfolio, and any transaction involving Family Dollar is yet to be confirmed.

“Significant Time and Investment”

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Consumer analysts Jennifer Bartashus and Jibril Lawal noted that if any action is taken then a sale is more likely than a spinoff given the “significant time and investment” made to Family Dollar with minimal returns.

Will Anyone Be Interested?

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Outside of the company, some industry experts have also questioned whether any other company would be seriously interested in purchasing the brand, which has publicly tanked in the last decade.

Not Clear Yet

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“It is not clear if there will be sufficient interest to execute a transaction,” said Michael Montani, an analyst at the financial services company Evercore. 

Not All Negatives

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Despite the troubling atmosphere around the company in recent years, Dollar Tree has made some positive strategic moves, including expanding the variety of items it sells and offering items with higher prices than its baseline $1.25 rate.

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The postWhy Dollar Tree Might Say Goodbye to Family Dollar first appeared on Liberty & Wealth.

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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.

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