Dollar Tree really has a discount for everyone. A group of private equity investors agreed to buy the flailing Family Dollar chain for $1 billion, a sharp loss for the Dollar Tree, which acquired it ten years ago for roughly $9 billion.
Brigade Capital Management and Macellum Capital Management will take over the nearly 7,000 Family Dollar stores. That’ll halve the number of stores Dollar Tree operates under its umbrella.
Why couldn’t Dollar Tree make Family Dollar work?
When Dollar Tree bought Family Dollar in 2015, it outbid rival Dollar General in hopes of cementing its status as the king of budget retailers. But Dollar Tree quickly learned that it had snapped up poorly maintained stores and found that Family Dollar had a different customer base that proved to be challenging to serve.
- Family Dollar serves lower-income shoppers and sells a range of household items at varied, but still cheap, price points. Dollar Tree’s customer base tends to have higher incomes and tends to use the store for craft and party supplies that predominantly cost around $1.
- But when Family Dollar and Dollar Tree stores were near each other, they were just similar enough to cannibalize each other’s foot traffic. The business also faced stiff competition from retailers like Amazon and Walmart.
The icing on the small, heavily discounted cake was the Justice Department slapping Family Dollar with a record $41.6 million fine for selling items that were stored in a West Memphis warehouse that was littered with not just live rats, but dead and decaying ones as well.
After it drops the Family Dollar baggage…Dollar Tree said yesterday it’s gaining market share among its higher income customers and may aim to offset President Trump’s tariffs by raising prices at some locations. In 2021, the chain increased prices to $1.25 saying it would allow stores to offer a wider range of products.—MM
This report was written by Matty Merritt and was originally published by Morning Brew.