Video source: YouTube, CBS Miami
Faced with the rising cost of goods and freight, discount retailer Dollar Tree Inc (Nasdaq: DLTR) plans to increase its baseline price from $1.00 to $1.25.
On Tuesday, the Chesapeake, Virginia-based chain said it has begun marking up merchandise at its 8,000 US stores, the latest sign that higher manufacturing and transportation costs are trickling down to consumers.
After selling everything for a $1 for 35 years, Dollar Tree chief executive officer Michael Witynski said raising prices by a quarter was “not a reaction to short-term or transitory market conditions."
Witynski added that “the additional price point [affords Dollar Tree] greater flexibility to manage the overall business, especially in a volatile, inflationary environment.”
To stick with the $1 cap, Dollar Tree said it had to stop selling some “customer favorites.” The higher price ceiling will give it more flexibility to reintroduce those items, expand selection and add new products and sizes to its shelves, the company said.
It also said hiking prices will help increase profit margins by “mitigating historically high merchandise cost increases,” such as freight, distribution and wage increases.
Witynski called the current climate to be “the appropriate time to shift away from the constraints of the $1 price point” and expects that customers will remain loyal.
Shoppers “believe that at $1.25, it’s still going to be an undeniable value because of what they’re seeing out in the marketplace,” Witynski said. “And they know that Dollar Tree hasn’t raised its price in 35 years, so they’re giving us credit.”
The move comes a few months after Dollar Tree announced it was testing the higher price at select stores, a pilot program that generated “overwhelmingly positive” customer feedback, the company said.
Witynski said, “Our Dollar Tree pricing tests have demonstrated broad consumer acceptance of the new price point and excitement about the additional offerings and extreme value we will be able to provide.”
Dollar Tree was among the last true “dollar stores” after most of its competitors had shifted away from the price point in recent years.
Dollar stores, which sell a variety of consumables, household products, seasonal goods and apparel, have been among the fastest-growing retail segments in the US, adding hundreds of locations over the course of the COVID-19 pandemic.
Earlier this month, The Wall Street Journal reported that activist investor Mantle Ridge had taken a stake of at least $1.8 billion in Dollar Tree. According to The Journal, Mantle Ridge aims to improve the business — which is made up of two segments, Dollar Tree and Family Dollar — and rework its approach to pricing.
Tuesday’s announcement came alongside Dollar Tree's third quarter results, which were largely in line with analyst expectations.
Dollar Tree’s earnings came in at $216.8 million, or $0.96 per share, a decline from $330 million, or $1.39 per share, in last year’s third quarter. Revenue rose 3.9% to $6.42 billion, compared to $6.18 billion last year.
Source: Equities News