The troubled Family Dollar chain is now someone else’s problem.
After a decade of trying to integrate and improve it, while closing and combining stores, Dollar Tree has finally called it quits on its ownership of its “other” dollar store chain, announcing this morning the sale of Family Dollar to a pair of private equity firms for the substantial sum of one billion dollars.
“Dollar Tree and Family Dollar are two different businesses with limited synergies. And each is at a very different stage of its journey,” Dollar Tree CEO Mike Creedon told investors in a call after the announcement. “Separating them will enable each banner to be led and managed by a dedicated team that can focus exclusively on that banner’s distinct needs and on realizing each banner’s full potential.”
The sale will be good for both chains, Creedon promised. “This is a major milestone in our multi-year transformation journey to help us fully achieve our potential,” he said of Dollar Tree. As for Family Dollar, the transaction will allow it to “strengthen its commitment to providing affordable and essential goods to customers so they can do more with less.”
“This transaction presented a unique opportunity to play a key role in reinvigorating an iconic business,” Matt Perkal, Partner at Brigade, added. He described Family Dollar as “a pillar in communities across the United States,” and said “we look forward to continuing and enhancing Family Dollar as its own enterprise, which we are confident will drive greater success for the business and value for all of Family Dollar’s stakeholders.”
Family Dollar doesn’t have the best reputation among shoppers these days, many of whom perceive it as a tired, unkempt, understocked store with undesirable locations, as compared to rival Dollar General and its own parent, Dollar Tree. And its financial performance was largely reflective of that reputation.
But a decade ago, Family Dollar was seen as a hot property, as both Dollar Tree and Dollar General fought to buy it. Dollar Tree won that battle, with an eye-popping $8.7 billion offer to buy the business. Leadership at the time saw it as a smart move, to combine two dollar store chains with different business models that would complement each other. “By utilizing the $1 fixed-price point in Dollar Tree and multi-price points at Family Dollar, we will deliver even greater value and choice to a broader range of consumers,” Dollar Tree’s then-CEO said at the time.
In time, though, Dollar Tree itself moved away from that “$1 fixed-price point” and there was less to differentiate the two dollar stores. It got to the point that the company began opening hundreds of “combo stores” with both retailers’ names out front.
Dollar Tree announced several efforts over the years to fix Family Dollar, promising everything from cleaner stores, to lower prices, to a new and improved digital coupon program. “I am a strong believer in the Family Dollar brand and what it means to our customers and associates in thousands of communities across the country,” the company’s then-CEO said a couple of years ago. But months later, the company announced it would close nearly 1,000 of Family Dollar’s approximately 8,300 stores. And months after that, it announced the start of “a formal review of strategic alternatives” for Family Dollar, corporate-speak for strongly considering a sale of the whole thing.
The Family Dollar sale, for a fraction of what Dollar Tree paid for it, is expected to close later this year. Then the new owners will be tasked with turning Family Dollar into a strong dollar store chain that can compete rather than cooperate with Dollar Tree. The nearly 1,000 combo stores will be “un-comboed,” with the majority being transferred to the new owners and rebranded as Family Dollar stores only, and a few dozen remaining with Dollar Tree and rebranding as Dollar Tree.
“Family Dollar has a tremendous potential to grow and succeed as an independent company,” new Family Dollar chairman-designate Duncan MacNaughton said in a statement. He now has a billion reasons to ensure that ultimately happens.
Image source: Family Dollar
