Dollar Tree announced Wednesday that it will consider selling or spinning off its Family Dollar chain. This comes nearly a decade after Dollar Tree acquired Family Dollar in what proved to be a problematic merger.
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Family Dollar’s Challenges
Family Dollar has about 8,000 stores across the U.S. These stores primarily serve low-income customers in urban areas. Prices at Family Dollar typically range from $1 to $10. The chain has faced a number of challenges in recent years. Last year, Family Dollar decided to close more than 900 stores. The stores have been criticized for being disorganized, overpriced, and overly expanding. The chain also faces stiff competition from larger retailers such as Walmart and Dollar General. Inflation has also increased Family Dollar’s operating costs and created difficulties for its low-income customers.
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CEO statement
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Dollar Tree CEO Rick Dreiling said in a statement that the company considered splitting off from Family Dollar because of the “unique needs” of the two separate chains. Dollar Tree stores are typically found in suburban areas and target middle-income consumers. That’s different from Family Dollar, which is located in urban areas and serves lower-income customers.
The Struggle of Family Dollar
Analysts have found that Family Dollar has been a problematic business for Dollar Tree. “The harsh reality is that Family Dollar is a problematic business that is stuck like a stone around Dollar Tree’s neck, dragging down overall performance,” said Neil Saunders, analyst at GlobalData Retail. Last quarter, Family Dollar’s sales at stores open at least a year grew just 0.1%. Following the announcement, Dollar Tree’s stock fell 3% in premarket trading.
A mistaken merger
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Dollar Tree purchased Family Dollar in 2015 for $8.5 billion. It was hoped that by purchasing Family Dollar, Dollar Tree could expand its customer base, reduce costs, and compete with Dollar General. Dollar General also made a bid for Family Dollar. However, the merger did not go as planned. Analysts believe the match between the two disparate chains was not a good one. Dollar Tree has struggled to manage the large Family Dollar store base. Many Family Dollar stores were in worse shape than Dollar Tree management expected. Initial strategies to improve sales, such as selling beer, were not successful. Additionally, many Family Dollar stores were located too close to each other, causing them to suffer a decrease in their sales.
Reform efforts
In 2018, The Wall Street Journal reported that Family Dollar’s sales were suffering due to neglected stores, poor product selection, and unhappy employees. In 2019, an activist investor pushed for the sale of the “underperforming” Family Dollar business, leading to the announcement of hundreds of store closures. Despite thousands of store renovation efforts in recent years, many Family Dollar stores are still poorly maintained. This year, Family Dollar was fined a record $41.6 million by the Department of Justice for violating product safety standards. The fine was imposed due to goods stored in a rat-infested warehouse in West Memphis that was filled with live, dead, and rotting rodents.
Source: https://th-xuyenmoc.edu.vn
Category: News