After years of struggling with the complexities of a merger that saw the combination of two major discount retailers a decade ago, Dollar Tree has decided to cut ties with Family Dollar.
The company has announced an agreement to divest its Family Dollar business to private equity firms Brigade Capital Management and Macellum Capital Management for $1 billion, a strategic move that aims to streamline operations and enhance focus on its core Dollar Tree segment.
Following the announcement, Dollar Tree’s shares surged nearly 7% in premarket trading on Wednesday.
The deal is part of the company’s ongoing efforts to improve performance, with CEO Rick Dreiling emphasizing that the divestiture “enables us to better allocate capital and resources to support our long-term growth strategy.”
The transaction is expected to be completed later this year.
Writing on the wall
The 2015 merger of Dollar Tree and Family Dollar, initially viewed as a strategic move to expand market reach, ultimately highlighted the complexities of integrating large retail operations. The decision to divest Family Dollar reflects a reassessment of strategic priorities and a focus on core business operations.
During Q4 of fiscal 2023, the company announced that it had initiated a “comprehensive store portfolio optimization review.” This review focused on, among other things, identifying underperforming stores for closure.
Following Dollar Tree’s Q1 results for 2024, there were hints that the company might spin off Family Dollar to focus on its core business after it announced it would close about 600 Family Dollar stores in the first half of fiscal year 2024 and 370 more over a period of a few years as their lease terms expire.
Dollar Tree said in its earnings report on Wednesday that it closed 695 stores in fiscal 2024 as part of its review.
Dollar Tree has not yet responded to Fast Company‘s inquiry regarding whether additional store closures are now anticipated.
A new chapter
With Brigade and Macellum’s backing, Family Dollar is poised for future success, according to Mike Creedon, CEO of Dollar Tree, as the discount retailer transitions into a new phase of growth.
“Under the experienced, dynamic leadership of Family Dollar President Jason Nordin, and with the financial support of Brigade and Macellum, Family Dollar will be well-positioned for growth as a private company,” said Creedon in a statement. “With the support of a dedicated team, Family Dollar will be able to strengthen its commitment to providing affordable and essential goods to customers so they can do more with less.”
Fast Company also reached out to Brigade Capital Management to ask if it planned to make any additional reductions to Family Dollar’s physical footprint
