These are Dollar Tree’s plans

Dollar Tree on Wednesday revealed plans to consider selling Family Dollar, revealing difficulties since its acquisition nearly a decade ago.

Family Dollar operates about 8,000 stores throughout the United States, predominantly serving low-income consumers in urban areas with products generally priced between $1 and $10.

In contrast, Dollar Tree stores are primarily in suburban locations, targeting middle-income shoppers. Its CEO, Rick Dreiling, stressed in a statement the “unique needs” of each chain, prompting the company to reevaluate its partnership.

Terrible store conditions, higher prices, and aggressive expansion characterize Family Dollar’s struggles. The chain faces significant competition from large retailers such as Walmart and Dollar General.

Rising inflation further increased operating costs, restricting the financial flexibility of its price-sensitive customers.

“The harsh reality is that Family Dollar is a troubled business that is a millstone hanging around Dollar Tree’s neck, hurting overall performance,” GlobalData Retail analyst Neil Saunders told CNN.

The struggles of Dollar Tree and Family Dollar

Despite these problems, Family Dollar sales at stores open at least a year rose just 0.1% in the latest quarter.

Dollar Tree shares fell 3% in premarket trading following these developments.

The 2015 merger between Dollar Tree and Family Dollar, which cost $8.5 billion, was initially seen as a strategic move to challenge larger competitors.

The hope was that merging the two entities would expand their customer base, streamline costs and fend off competition from Dollar General, which had also shown interest in acquiring Family Dollar.

However, the reality turned out to be different. Dollar Tree underestimated the management challenges posed by Family Dollar’s extensive store base. The worse-than-expected condition of Family Dollar stores and the ineffectiveness of early sales strategies, such as adding beer to its inventory, failed to boost performance.

Many Family Dollar stores, often located close to each other, cannibalized each other’s sales, creating a counterproductive dynamic. Analysts pointed to past problems such as sloppy stores, an inadequate product mix and dissatisfied employees.

These problems came to a head in 2018, when The Wall Street Journal revealed the company’s faltering sales, compounded by unkempt stores and poor product selection.

In 2019, poor store performance led to pressure from activist investors for a sale, leading to the closure of hundreds of Family Dollar locations.

Attempts were made to renovate numerous Family Dollar locations, but maintaining proper standards remains a concern.

Earlier this year, the Justice Department imposed a record $41.6 million fine on Family Dollar for violating product safety standards. An inspection had discovered a warehouse plagued by rodent infestations, revealing serious failures in maintaining safety standards.