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Dive brief:
- Dollar Tree Inc. is adding prices above its traditional $ 1 offer at all of its Dollar Tree Plus stores in the wake of what the company has called “positive customer feedback.”
- The retailer is also adding higher prices to older “selected” Dollar Tree stores, it said in a press release.
- The announcement comes as Dollar Tree Inc. is expanding the reach of its Dollar Tree Plus concept, with 500 projects slated for year-end. The retailer plans to add 1,500 more locations in 2022 and have at least 5,000 by the end of fiscal 2024.
Dive overview:
For most of modern economic history, the value of the US dollar has declined with time and with inflation. For a dollar store, the $ 1 price promise gets a little harder to keep every year.
This year, the price of $ 1 is particularly restrictive. On the company’s latest earnings conference call, Dollar Tree executives detailed the specific pressure the company is under as its freight costs spiral out of control amid supply chain bottlenecks. global. As other retailers increase customer prices to recoup their own costs, Dollar Tree is more tied to its current prices because of its core promise to customers.
“We believe the Dollar Tree banner imports more containers for $ 100 million in sales than other major retailers,†CEO Mike Witynski told analysts and investors in August, according to a transcript from Seeking Alpha. “And combined with our low price of $ 1, we have a disproportionate impact on freight costs.”
The company forecasted estimated transportation costs of an additional $ 185 million to $ 200 million for the year, on top of the already high costs, all of which create a major drag on profits. By comparison, Dollar General executives, who don’t share the same commitment to the $ 1 price tag, recognized the challenge of rising costs but didn’t paint the same grim picture of its impact over the year as Dollar Tree.
Dollar Tree Plus, which the retailer has integrated with existing stores and is expanding to new stores, is a solution to the larger problem of being a dollar store in a world of inflation. It offers products at prices of $ 1, $ 3 and $ 5, allowing the company not only to protect its profits, but also to expand its assortment. Witynski said in August that Dollar Tree Plus stores saw an overall increase in sales of 6% and a similar increase in profits.
Analysts at Telsey Advisory Group led by Joe Feldman described the price hike as “part of Dollar Tree’s larger medium-term strategy to help offset rising costs, including raw materials, the chain of ‘supply and manpower’.
The move mirrors those of other industry players, with Five Below expanding its Five Beyond concept and Dollar General playing with higher prices for its Popshelf concept that targets suburban shoppers.
The Dollar Tree experience is not without risks, however. “The success of the higher prices at Dollarama and Five Below makes us believe that Dollar Tree should benefit from changes in its pricing strategy, although we are concerned about customer reaction given their high price sensitivity,†said analysts said.
With Dollar Tree Plus, the retailer is expanding its new format which combines its Dollar Tree and Family Dollar banners into a single store targeting rural markets. Combination stores also allow higher prices through the Family Dollar banner, which is not as fixed at the price of $ 1. The company said it currently has 105 combined stores and expects to add 400 in fiscal year 2022. In total, the retailer believes it could add 3,000 combined stores in the coming years.
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