CHESAPEAKE, Va. — Dollar Tree Inc. will begin adding new price points above $1 at all of its Dollar Tree Plus stores while testing higher price points at more than 100 selected legacy Dollar Tree locations. The moves were prompted both by positive customer response to the retailer’s recent format initiatives and by rising operating costs.
Dollar Tree had maintained its positioning as a pure single-price-point retailer from its debut in 1986 until 2019, when it began testing items priced at $3 and $5 in display sections distinguished as Dollar Tree Plus. The retailer expects to have 500 Dollar Tree Plus stores in operation by the end of its fiscal year, and another 1,500 stores are to be converted during fiscal 2022. By the end of fiscal 2024, the chain expects to field at least 5,000 stores in that format.
“We believe testing additional price points above $1 for Dollar Tree product will enable us over time to expand our assortments, introduce new products and meet more of our customers’ everyday needs,” said president and chief executive officer Michael Witynski in a statement. “We are a ‘test-and-learn’ organization, which is what we are doing with this new initiative. We listen to our customers and believe it will make shopping with us an even better experience. Our merchants have proven that they are among the best in the industry in working with suppliers to create extreme value, and we will continue to deliver the ‘thrill of the hunt’ to our customers.”
In an interview with The Wall Street Journal, Witynski added that the pricing initiative is also a response to inflationary pressures driven by supply chain problems and rising freight costs as well as rising wage expense. He pointed out that, because of its low price points, freight costs account for a higher percentage of Dollar Tree’s cost of goods. In addition, he said, the retailer is experiencing labor shortages in stores and distribution centers.
In August Dollar Tree scaled back its earnings forecast for the year, citing escalating supply chain and freight costs. The company currently projects net earnings of $5.40 to $5.60 per share, down from its May guidance of $5.80 to $6.05 per share. Dollar Tree posted earnings of $5.65 per diluted share during fiscal 2020, which ended January 30.
Dollar Tree also pointed to the success of its Combo Store format, which melds elements of its Dollar Tree and Family Dollar banners. Like Dollar Tree Plus, the Combo Store was introduced in 2019 and has since been refined. The company now has 105 Combo Stores in operation and plans to add 400 more in fiscal 2022.
Management sees potential for up to 3,000 of the hybrid stores, which are generating robust same-store sales increases and higher gross margins, thus leveraging store expenses better.
Investors welcomed the move, driving the company’s share price up more than 16% the day after the announcement. Up until the announcement, its stock price had fallen approximately 20% since the start of the year.
You must be logged in to post a comment Login