New York (CNN) 鈥� 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 .
Dollar Tree CEO Rick Dreiling said in a statement that the 鈥渦nique needs鈥� 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鈥檚 operating costs and squeezed its lower-income customers.
鈥淭he saga of Family Dollar is a long and unhappy one,鈥� Neil Saunders, an analyst at GlobalData Retail, said in a note to clients Wednesday. 鈥淭he harsh reality is that Family Dollar is a problematic business which is a millstone around Dollar Tree鈥檚 neck, dragging down overall performance.鈥�
Family Dollar鈥檚 sales at stores open at least one year ticked up 0.1% last quarter.
Dollar Tree鈥檚 () stock fell 3% in premarket trading.
Merger gone bad
Family Dollar has struggled since Dollar Tree for $8.5 billion.
Dollar Tree believed acquiring Family Dollar would help it compete against bigger rivals. But it misjudged the deal.
The combined company hoped that by joining forces it could grow its customer base, reduce costs and fend off Dollar General, which is located primarily in rural areas. Dollar General had also bid for Family Dollar.
But analysts say the match between the two different chains was a poor fit, and Dollar Tree has struggled to manage the larger Family Dollar store base.
Family Dollar stores were in worse condition than Dollar Tree management expected, and early strategies to improve sales, such as selling beer, fell short.
Many Family Dollar stores were located too close to each other and cannibalized each other鈥檚 own sales.
鈥淔amily Dollar鈥檚 sales have been sputtering, hurt by neglected stores, poor product selection and unhappy workers,鈥� The Wall Street Journal聽聽in 2018. Family Dollar 鈥渘eeds more work than the company originally thought.鈥�
A year later, an activist investor pushed for a sale of the 鈥渦nderperforming鈥� Family Dollar business, and Family Dollar announced it would聽.
Even though Family Dollar has renovated thousands of stores in recent years, many are still poorly maintained, analysts say.
Family Dollar was hit with a record $41.6 million fine by the Justice Department this year for violating product safety standards after selling items that were stocked in a rat-infested warehouse in West Memphis filled with live, dead and decaying rodents.
This story has been updated with additional developments and context.
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