By CultureBanx Team
- Dollar Tree is testing pricier products by forsaking its $1 everything promise
- U.S. consumer prices surged 5.3% in August
Dollar Tree’s (DLTR +2.36%) namesake value promise that’s held true for decades will now be only mostly true, as the company is set to raise prices as much as $0.50 on some products. The discount chain had been testing pricier products in its “Dollar Tree Plus” collection in an effort to increase sales, but this new price increase will affect items throughout the store. Minority communities across the country may be shelling out more money as they battle raising prices from stores which typically cater to low-end consumers, especially when the majority of its products are made in other countries.
Why This Matters: The average Dollar Tree shopper comes from a household that earns $40,000 or less per year. In 2019, the U.S. Census Bureau released data showing the median income for an African American household was $39,490, putting them right in Dollar Tree’s consumer sweet spot. It’s not just low income shoppers that frequent these dollar stores, customers with household incomes of more than $70,000 claim they also shop at discount retail chains.
Consumer prices have surged up 5.3% in August, with things like the cost of clothes, cars, food all increasing while the global economy emerges from the pandemic. Many companies are passing those costs on to consumers, sending the price for trinkets, food and more higher. Items that can go for $1.25 to $1.50 will soon be found in the mix at some locations amid the typical assortment of $1 products.
Dollar Tree had already begun testing higher prices at several hundred of its nearly 8,000 locations in its “Dollar Tree Plus” section, with items that can go for as much as $5. A J.P. Morgan analyst noted past conversations with Dollar Tree executives who cited a significant sales boost at stores offering a Plus section.
It’s not just Dollar Tree that’s trying to battle inflation. Fed Chair Jerome Powell said that price increases have worsened amid snarled supply chains and rising labor costs. The accelerating inflation comes as companies have been forced to pay more to secure critical materials.
What’s Next: Let’s remember that Dollar Tree manufactures about 40% of its products in China, and they must find a way to manage costs. Last month the retail chain stated that rising shipping costs would take a bite of $1.50 to $1.60 out of its per-share profits this year. For an economy finally starting to roar back from the pandemic recession, higher prices pose a major potential risk. What matters most is how committed a national discount chain like Dollar Tree will keep prices over $1.
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