New York (CNN) — Dollar Tree said Wednesday it will explore a sale or spinoff of Family Dollar, less than a decade after acquiring the chain in what has turned out to be a disastrous merger.
Family Dollar has around 8,000 US stores, catering to low-income customers predominantly in cities with prices typically ranging from $1 to $10. The chain has struggled in recent years. Last year, Family Dollar announced plans to close more than 900 stores.
Dollar Tree CEO Rick Dreiling said in a statement that the “unique needs” of the two different chains led the company to explore a split from Family Dollar. Dollar Tree typically has stores in suburban areas and focuses on middle-income consumers, unlike Family Dollar, which is located in more urban areas and caters to lower-income customers.
Messy stores, high prices and over-expansion have plagued Family Dollar, analysts say.
The chain has also faced steep competition from larger retailers, such as Walmart and Dollar General. And inflation in recent years has increased Family Dollar’s operating costs and squeezed its lower-income customers.
Merger gone bad
Family Dollar has struggled since Dollar Tree bought it in 2015 for $8.5 billion.
Dollar Tree believed acquiring Family Dollar would help it compete against bigger rivals. But it misjudged the deal.
Since the “botched acquisition,” Family Dollar “has caused Dollar Tree nothing but hassle,” Neil Saunders, managing director of GlobalData, said in a recent note to clients. “Basically, almost ten years on, Dollar Tree is still sifting through the mess it inherited and has not been able to completely turn around.”
Dollar Tree’s (DLTR) stock fell 3% in premarket trading.
This is a developing story and will be updated.
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