Dollar Tree is making a big change to the way it does business.
After 35 years of selling everything for $1.00, the extreme value discounter said it is rolling out a $1.25 price point to all Dollar Tree stores nationwide. The move, which comes as inflation and supply chain disruptions are pushing up the cost of many goods,
was not unexpected. In September, the retailer said it planned to add additional price points above $1.00 to all Dollar Tree Plus stores and – on a test basis – to select legacy Dollar Tree storesstart testing.
“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,” said Michael Witynski, president and CEO.
The company plans to introduce the new price point, which will apply to the majority of its assortment, in more than 2,000 additional Dollar Tree stores in December. The rollout to all stores will be completed by the end of its first fiscal quarter of 2022.
Dollar Tree said the $1.25 price point will enable it to return to its historical gross margin range by mitigating historically high merchandise cost increases, including freight and distribution costs, as well as higher operating costs, such as wage increases.
The retailer said the higher price point will also enhance its ability “to materially expand its offerings and introduce new products and sizes.” Customer response has been “overwhelmingly positive,” according to the company.
“When surveyed, 77% of shoppers indicated they were almost immediately aware of the new price point when visiting the store,” Dollar Tree stated. “Additionally, 91% of those surveyed indicated they would shop Dollar Tree with the same or increased frequency. Many have also indicated they are seeing price increases across the market and that Dollar Tree is still providing the products they need at an undeniable value.”
Dollar Tree announced the price change with its third-quarter earnings. Net income fell to $216.8 million, or $0.96 a share for the quarter ended Oct. 30, from $330.0 million, or $1.39 a share, in the year-ago period.
Net sales rose 3.9% to $6.42 billion, above estimates of $6.41 billion. The cost of sales grew 9.4%, sending gross margin down to 27.5% from 31.2%.
Same-store sales increased 1.6% and were up 6.7% on a two-year stacked basis. By banner, same-store sales rose 2.7% at Family Dollar and 0.6% at Dollar Tree.
Dollar Tree noted that its third-quarter freight costs were “significantly” higher than expected and it expects the trend to continue in the near term. The retailer said it is being impacted by all aspects of freight, including higher costs for inland transportation by truck and rail. In the third quarter, the company moved more containers than originally planned and, consequently, leveraged the spot market at rates and frequency higher than forecasted.
“Freight and supply chain disruptions continue to be the company’s biggest challenge in the near term,” Dollar Tree stated. “The company believes much of these freight challenges are transitory.”
The retailer said it is taking robust action to mitigate the impact of the current freight environment on its operations. The rest of the business is performing much better in the near term.
“We are making great progress on our key strategic initiatives – Dollar Tree Plus, Combo Stores and the H2 format – and, as previously announced, we are accelerating these initiatives in 2022,” said Witynski. “The additional price point at Dollar Tree affords us greater flexibility to manage the overall business, especially in a volatile, inflationary environment, while driving customer loyalty and store productivity,” concluded. “In this environment, we believe small-box, value retail is more important than any other retail sector to millions of households. We believe we are well-positioned to see continued momentum in our Family Dollar business, and expect the Dollar Tree banner to return to its historical gross margin range of 35% to 36% in fiscal 2022.”