With discount chain Family Dollar possibly going up for sale, retail industry analysts and brokers are speculating on who would have the financial wherewithal — or motivation — to acquire a business with nearly 8,000 stores.

The marriage of Chesapeake, Virginia-based Dollar Tree and Family Dollar has been shaky for some time. But Dollar Tree's announcement Wednesday that it was exploring whether it should sell or spin off Family Dollar, a chain it purchased in 2015 for roughly $9 billion, was still unexpected.

Dollar Tree has retained J.P. Morgan Securities as its financial adviser to study its options regarding Family Dollar. This early on, no decision has been made on whether Family Dollar will in fact be put up for sale. If it is, the transaction could play out several ways, industry professionals say: For example, Dollar Tree could in theory decide to sell off pieces of Family Dollar to different buyers, or look to divest it all in one piece.

It's doubtful that any U.S. retailer would likely be interested in, or have the resources to, acquire the entire Family Dollar store fleet and operations, according to several industry analysts. More likely, a private equity firm would scoop up the chain and then carve it up, dividing Family Dollar into groups of stores to be sold individually, some said.

One broker suggested that a retailer in another part of the globe looking to gain a foothold in the United States, or to quickly expand its presence in the world's biggest economy, might be a potential buyer.

"The key questions are what valuation Family Dollar might attract and who might want to buy the business," Neil Saunders, a retail analyst and managing director of analytics firm GlobalData, said Wednesday in a note to clients. "The answer to the former is that Dollar Tree would get nowhere near the $8.5 billion it originally paid. It is clear to all in the market that Family Dollar is a chain that needs a lot of work and investment, a fact that will also thin out the number of interested parties. A spin-off into a separate entity may be an easier option although, again, Dollar Tree will likely take a loss on the original purchase price."

Dollar Tree declined to comment on Saunders' remarks.

Some industry professionals interviewed couldn't recall in recent memory the potential sale of a retailer with so many stores. Last year, Bed Bath & Beyond filed for Chapter 11 and tried to find a buyer for its namesake chain and Buy Buy Baby — roughly 480 brick-and-mortar retail locations open at that time — and failed. Both businesses ended up being liquidated, with their stores shuttered.

Macy's — owner of its namesake department stores as well as Bloomingdale's and Bluemercury — is evaluating its strategic options after dissident shareholders offered $6.6 billion to purchase the company. Macy's namesake store portfolio at that time was about 500 locations. The retailer and all its chains now have just over 700 stores.

The merger of Dollar Tree and Family Dollar nearly a decade ago may have made sense on paper, the combining of two discounters with a similar merchandise model that could benefit from economies of scale and synergies. But it turned out to be a bit of a mismatch, as the two chains had stores in different kinds of markets and different customer bases. And the Family Dollar stores were in woeful need of investment as well, industry analysts said.

"Dollar Tree stores tend to be in suburban locations catering to a mid-to-high-income consumer," Amanda Lai, a director at consulting firm McMillanDoolittle, said in an email to CoStar News. "Whereas, Family Dollar stores tend to be in more urban areas and have likely been challenged by expensive urban rents, continued reduced foot traffic in downtown areas post-pandemic, and greater competition in cities compared to its rural counterpart, Dollar General."

Dollar Tree declined to comment on Lai's remarks.

The retailer has already taken steps to mitigate its problems stemming from Family Dollar. In March, the retailer said it planned to close roughly 970 underperforming Family Dollar stores. On the earnings call for the quarter ended May 4 on Wednesday, Dollar Tree CEO Rick Dreiling reported that just over 500 Family Dollar stores had been closed in that time, leaving that chain with 7,877 locations. In May, an additional 90 Family Dollar stores were shut, according to Dreiling.

As of May 4, there were 8,520 Dollar Tree stores. At that time, Dollar Tree and Family Dollar stores combined totaled 16,397.

Industry analysts have questioned how appealing Family Dollar sites would be to a buyer, given the breadth of the store portfolio, their individual square footage and location in tertiary markets. On one hand, the U.S. retail vacancy rate is at a record low, at about 4%. Some retailers are having trouble finding space for new stores, so acquiring Family Dollar would be a way to expand their physical footprints. But such a purchase wouldn't work or even be feasible for some chains, according to several industry analysts.

"In in my mind, there's not one retailer that's going to come and absorb it [Family Dollar], then convert the stores," Dean Tselepis, senior managing director at Newmark, told CoStar News. "I think it's someone that sees they could buy it at a discount, and they think it's worth more than that. ... It's probably my guess that some sort of foreign company comes in [to buy it]. I mean, that's another option."

Brandon Svec, national director of U.S. retail analytics for CoStar Group, also said he doesn't see a retailer wanting to purchase Family Dollar.

"Given the size and location of the portfolio, I do not think there is another retailer that will make a serious run at Family Dollar and a sale will likely involve a private equity buyer, similar to KKR’s purchase of Dollar General," Svec said in an email to CoStar News.

KKR and several partners paid $7.2 billion for Dollar General — Dollar Tree's direct rival — in July 2007, taking it private. The retailer went public again in 2009.

Both Tselepis and Lai said Family Dollar's smaller store footprints aren't a good fit for some chains that are in expansion mode. Family Dollar's locations average 7,000 to 10,000 square feet, according to Tseleis. And like him, Lai suggested that a foreign retailer might see acquiring Family Dollar as an entrance to the United States.

"While there are a lot of players in the dollar and discount space, such as Burlington and T.J. Maxx, Family Dollars tend to be on the smaller side, so they would need a buyer whose stores have a comparable store footprint like Five Below," she said. "Alternatively, a sell-off of the Family Dollar brand could open up an opportunity for a Canadian retailer like Dollarama to enter the U.S. This is less likely, however, since the strong U.S. currency would make it expensive to operate."

On Wednesday's earnings call, Dreiling expounded on why Dollar Tree is studying whether Family Dollar should be operated apart from the banner chain.

"Separating the two businesses could enhance the performance of each one individually and allow them both to reach their true valuation potential," he said. "Today, each banner is at a different stage of its respective journey, and each has its own set of unique needs. This is why we believe now is the right time to conduct a thorough review of strategic alternatives for Family Dollar so we can determine what is the proper operational and ownership structure to best support and enable its transformation. At the same time, that should allow us to fully unlock the value of the Dollar Tree banner."

In the end, "we want to ensure that both the Dollar Tree and Family Dollar banners have the right strategic, operational and capital structures necessary to meet the evolving needs of their customers and to maximize value creation in each business," Dreiling told Wall Street analysts.

"We have not made any prejudgments regarding the eventual outcome of this process, especially given the wide range of potential outcomes," he said.

In the first quarter, Dollar Tree's consolidated net sales rose 4.2%, to $7.63 billion. Same-store net sales increased 1.7% for Dollar Tree and 0.1% for Family Dollar

"The harsh reality is that Family Dollar is a problematic business which is a millstone around Dollar Tree’s neck, dragging down overall performance and the company’s valuation," Saunders said. "By getting rid of the weight the company voluntarily encumbered itself with when it bought Family Dollar back in 2015, Dollar Tree will be able to focus more squarely on its core business, which has better prospects and a much stronger position in the market."