Dive Brief:

• Dollar Tree has filed a lawsuit against the failed Dollar Express and its owner, Sycamore Partners, accusing the firm of siphoning funds and failing to reimburse the company for $50 million in expenses, according to Supermarket News.
• Sycamore bought 330 Family Dollar stores in 2015 that were divested as part of the discount operator's merger with Dollar Tree. Sycamore enlisted Dollar Tree’s management, operations and resources under an agreement to help it transition to the Dollar Express brand. That brand never came to fruition, and Sycamore agreed to sell the stores to Dollar General earlier this year.
• Sycamore, meanwhile, sued Dollar Tree, arguing the chain undercut its rebranding efforts by opening new stores near the ones it divested, and placing underqualified staff in those stores.

Dive Insight:

The 2015 merger between Dollar Tree and Family Dollar gave the combined companies scale on par with industry leader Dollar General and its nearly 13,000 stores. The deal also created a more diverse store portfolio. Family Dollar, which serves mostly rural, low-income consumers, added its locations and resources to Dollar Tree’s many suburban stores.

Under the deal, the Federal Trade Commission required Family Dollar to divest locations across 36 states. Private-equity firm Sycamore Partners bought up these locations with the intention of rebranding them under a newly formed Dollar Express brand. Because it didn’t immediately have the expertise needed to operate the dollar stores, Sycamore signed a transfer-of-services agreement with Dollar Tree, under which the retailer would extend its resources and management expertise to the firm to help it transition. The agreement included a timeline under which Sycamore would rebrand the stores, gain its footing and repay Dollar Tree for its services.

However, Sycamore never rebranded the stores it bought, selling them to Dollar General earlier this year. So who’s to blame for this failure to launch? The answer to that question is at the heart of these competing lawsuits.

According to Dollar Tree, Sycamore leveraged its expertise to turn Dollar Express into a “personal cash cow” for the firm, and failed to pay Dollar Tree for the inventory and services it rendered. Sycamore, meanwhile, contends that Dollar Tree sabotaged the rebranding effort by opening competing stores nearby, and by placing underqualified managers and employees in the stores it divested.

Dollar Tree’s potential meddling aside, the failure of Dollar Express underscores just how difficult it is for new retailers to enter the industry. Dollar stores have retained many of the shoppers that came to them during the recession, and have expanded their assortment to better compete with food retailers, department stores and convenience stores. With the industry having consolidated around a few large companies, and many speculating that dollar stores are immune to the pressures of e-commerce, it’s an increasingly attractive — but ultimately very difficult — environment for upstarts.