Dollar Tree has decided to divest its Family Dollar business in an effort to address financial struggles and refocus on its core brand. The deal, valued at approximately $1 billion, involves selling the discount store chain to private equity firms Brigade Capital Management and Macellum Capital Management. This move marks a shift in strategy for Dollar Tree, which had initially acquired Family Dollar for nearly $9 billion in 2015. The transaction is expected to be finalized within 90 days, with Family Dollar maintaining its headquarters in Chesapeake, Virginia.
When Dollar Tree acquired Family Dollar in 2015, it outbid Dollar General in an effort to expand its market presence. However, since then, the company has faced financial setbacks, with rising competition from retailers like Walmart, Target, and online marketplaces such as Temu and Shein. The acquisition, which was once seen as a major growth opportunity, has now resulted in significant losses for the company, prompting the decision to sell the business at a fraction of its purchase price.
Why Did Dollar Tree Decide to Sell Family Dollar?
Dollar Tree has been struggling with declining profits, largely due to decreasing foot traffic and increased competition. Family Dollar, in particular, has experienced weaker same-store sales, with additional financial strain caused by unexpected costs from a recall of over-the-counter drugs and medical devices across 23 states in 2023. CEO Mike Creedon, who assumed his position in December 2024, highlighted the importance of this sale in enabling the company to concentrate on improving the performance of Dollar Tree stores.
“This is a major milestone in our multi-year transformation journey to help us fully achieve our potential,” Creedon stated, emphasizing that the company will now focus on expanding its product offerings and store presence.
How Will This Affect Dollar Tree’s Business?
The company plans to strengthen its Dollar Tree brand by opening new stores, enhancing its product selection, and pursuing strategic business moves. According to Creedon, the restructuring efforts will aim to improve profitability and increase returns on capital investment. The company has already implemented cost-cutting measures, including store closures, as part of its broader turnaround strategy.
Last year, Dollar Tree announced plans to shut down nearly 1,000 stores, including 600 Family Dollar locations in early 2024. An additional 370 Family Dollar stores and 30 Dollar Tree stores will also close in the coming years as leases expire. These closures are intended to streamline operations and address underperforming locations.
Financial institutions including JPMorgan Securities LLC and Davis Polk & Wardwell LLP are advising Dollar Tree on the transaction, while Jefferies LLC is serving as the lead financial adviser to Brigade and Macellum. The acquisition is backed by financing from Wells Fargo, RBC Capital Markets, and WhiteHawk Capital Partners.
With Dollar Tree’s stock down more than 40% year-to-date, the company is under pressure to regain investor confidence. By offloading Family Dollar, the retailer aims to refocus on its core business and improve financial stability. The effectiveness of this decision will depend on how well Dollar Tree executes its expansion plans and navigates competition in the retail sector.
