When Dollar Tree purchased Family Dollar in 2015 for $9 billion, then-CEO Bob Sasser said the deal would expand the discount chain’s reach among low-income shoppers and diversify its assortment by adding a multi-price banner to its fixed-price business.
A decade later, Dollar Tree divested from Family Dollar in a $1 billion deal announced in March that has placed the business in the hands of private equity firms Brigade Capital Management and Macellum Capital Management.
“We look forward to continuing and enhancing Family Dollar as its own enterprise, which we are confident will drive greater success for the business and value for all of Family Dollar’s stakeholders, including employees, customers, and communities,” Matt Perkal, partner at Brigade, said in a statement.
So what went wrong? Autopsies of the merger abound, but some believe the problems go deeper than the two banners’ compatibility.
RJ Hottovy, head of analytical research at Placer.ai, told Retail Brew that Family Dollar failed to adopt what has become a key strength of competing discounters: the treasure hunt experience.
“From a merchandising assortment perspective, they’ve fallen behind their peers,” he said. “You’ve got more of this treasure-hunt environment at Dollar General or even a Dollar Tree that I think people seek out. They feel like they’re getting something unique at those kinds of locations.”
Nothing special: Instead Family Dollar focused on consumer staples, Hottovy added, which placed the store into competition with mass retailers such as Walmart and Target that were able to offer more competitive pricing on those items.
“You can get those staple categories at a lot of different places,” he said.
Placer.ai’s foot traffic data bears this out. Since 2019, cross-visit data shows that 90% of Family Dollar’s annual visitors also did some shopping at Walmart. And while that rate has remained relatively stable over the past six years, an increasing number of Family Dollar shoppers started shopping at rival discount stores, rising from two-thirds of visitors to three-quarters over the same period.
In other words, Family Dollar never differentiated itself from Walmart, and increasingly didn’t differentiate itself from fellow discounters.
Neil Saunders, managing director of GlobalData Retail, agreed that Family Dollar’s value proposition vis-a-vis other discounters is “not good enough to drive growth and to compete successfully in the market.”
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He pinpointed three areas where the brand is failing to stand out, and for the first two at least, investment may be the only solution.
“Family Dollar isn’t as competitive on price as it should be, and it needs an investment on price,” he said. “Another one is the stores. A lot of the stores are suboptimal in terms of their design, and they need investment to bring them up to speed.”
He also mentioned that “quite a number” of Family Dollar stores are “not in great locations.”
This raises the question of whether Family Dollar’s new owners are prepared to “spend money to make money,” Saunders added, or if they have other goals in mind such as monetizing the business or generating a quick return.
- The buyout of Toys R Us is a case of the latter playing out. Private equity firms KKR and Bain Capital joined real estate investment company Vornado in purchasing the toy store only to sell off its property to other buyers.
Reinvigorating an iconic brand: Brigade and Macellum, for their part, are at least signaling that they see a future for the brand. Jonathan Duskin, CEO and partner of Macellum, said the transaction was an opportunity to play a part in “reinvigorating an iconic business.”
Former Family Dollar President Duncan McNaughton, who is joining the board of the newly private company, said the brand “has a tremendous potential to grow and succeed as an independent company.”
Saunders said he’s giving the new owners the benefit of the doubt, but he’s keeping his eyes peeled for certain changes that would suggest they plan to make the investments needed to make the company a success. These include investments in supply chains, or store format, or the announcement of a new management structure.
“I think we need to give it time to settle, but that’s the kind of area where we will be looking,” he said.