![]() Luke Sharrett/Bloomberg/Getty ImagesĬVS is closing 900 stores, and the big winner is Dollar General This part of the business is crucial to Dollar Tree because customers visit stores most frequently to buy these items, not gifts and toys.Ī Dollar General store in Crestwood, Kentucky, U.S., on Thursday, Aug. Selling stuff strictly for $1 forced Dollar Tree to stop offering some “customer favorites,” the company said, particularly in packaged and frozen food and household essentials. “How small does a package of laundry detergent need to get to be $1?” said David D’Arezzo, a former chief merchant at Dollar General and veteran retail executive. When you can only sell stuff for $1, it limits the products you can make money on and the size and quality of your merchandise. Selling stuff for $1.25 will “enable us to mitigate historically high merchandising cost increases, including freight and distribution,” Witynski said on an earnings call Tuesday, as well as “wage increases.” It will also help Dollar Tree offset rising costs. The drop was particularly steep last quarter, falling 4.7% percent to around 30% from the same quarter a year ago.ĭollar Tree said that its decision to raise prices permanently was “not a reaction to short-term” inflation, but the change will help Dollar Tree return to its typical profit margin of around 35% next year. This has crimped Dollar Tree’s profits and margins.ĭuring Dollar Tree’s first three quarters of 2021, its profit margin dropped 1.5% from the same stretch last year. The producer-price index, which measures the price manufacturers receive for their goods and services, jumped 0.6% last month from September and rose 8.6% annually, matching annual record highs, according to the latest Labor Department data.Įverything will not be $1 at Dollar Tree anymore. It becomes more challenging for Dollar Tree and other low-cost stores to hold prices at a fixed level and maintain its profitability as everything becomes costlier.Ĭosts are spiking for businesses. Its business model relies on keeping a lid on costs for labor, domestic transportation, fuel, merchandise and ocean shipping - 40% of its products are imported from overseas. Here’s what drove Dollar Tree’s decision to abandon its $1 strategy for good.ĭollar Tree sells primarily low-margin consumables such as food and household staples, as well as toys, gifts and seasonal goods at small, no-frills stores. (DLTR) CEO Michael Witynski said in a statement Tuesday, adding that it was a “monumental step” for the chain. “This is the appropriate time to shift away from the constraints of the $1 price point,” Dollar Tree It also said it would add $3 and $5 items to 5,000 stores, expanding on a prior strategy. In September, Dollar Tree said it planned to begin selling items at $1.25 and $1.50 at some stores for the first time. It’s not an entirely abrupt shift for Dollar Tree, however. The company finally walked away from $1 because it was hurting business. ![]() But the $1 strategy didn’t work for the current moment. So its move to walk away from that image was a significant shift for the company and a sign of how rising inflation and the supply chain crisis is pushing retailers to adjust long-running strategies.ĭollar Tree’s model may have worked over the past couple decades when inflation was practically nonexistent. In 2015, Dollar Tree boasted that it was “the nation’s leading operator of fixed-price point stores.” ![]() Tiffany Hagler-Geard/Bloomberg/Getty Imagesīreakfast is going to be more expensive next yearĭollar Tree was the last of the major dollar store chains that actually sold stuff for $1 and was defined by its prices. brand Cheerios cereal for sale at a store in White Plains, New York, U.S., on Friday, March 19, 2021.
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