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Dollar Tree tests change in strategy

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CHESAPEAKE, Va. — Dollar Tree Inc. last month began adding items costing more than a dollar at select Dollar Tree stores as it weighs whether to revise its commitment to a single price point.

The multi-price-point merchandise is being displayed in sections branded as Dollar Tree Plus to clearly differentiate it from the stores’ $1 assortment.

“This carefully considered test, leveraging the merchandising strength and purchasing power of Family Dollar, is designed to understand how Dollar Tree’s deeply loyal customers respond to the addition of merchandise at values greater than $1,” the company said last month in a news release summarizing financial results for the first quarter of fiscal 2019.

“With its ‘Everything’s a Dollar’ model, Dollar Tree has remained one of the most unique, differentiated and defensible brand concepts in all of value retail,” commented Dollar Tree president and chief executive officer Gary Philbin in the release. “However, we have always been a ‘test and learn’ organization that is committed to evaluating all opportunities to deliver great value for our customers while driving long-term value creation.

“During this test, we look forward to measuring and assessing the initial results and understanding if the introduction of multiple price points across a broader set of stores is in the best interests of our customers, company and shareholders.”

Dollar Tree executives said the initial test phase will be ex-
panded to involve more than 100 urban, suburban and rural Dollar Tree locations.

Aside from a limited trial many years ago, Dollar Tree’s $1 cap has held steadfast over the company’s 33-year history, while rivals including Dollar General have sold items at higher prices as a way to address inflation and upgrade merchandise quality.

Meanwhile, Dollar Tree continues to execute a store optimization program aimed at improving the performance of its Family Dollar stores.

The retailer last year tested a new format for new and renovated Family Dollar stores, called H2 internally, and executives said they were encouraged by the results. The format includes a $1 Dollar Tree merchandise section, an expanded party assortment and an increased number of cooler and freezer doors. H2 stores are delivering increased traffic and comparable-store sales increases of more than 10%, the company said, adding that H2 stores perform well in a variety of locations, especially where Family Dollar has been most challenged in the past.

As of May 4, the company had 550 H2 stores, up from 200 at the start of the first quarter. Dollar Tree officials said they expect H2 renovations for at least 1,000 Family Dollar stores in fiscal 2019.

Dollar Tree continues to close underperforming Family Dollar stores, with as many as 390 expected to be shuttered by fiscal year-end. It also expects to re-banner some 200 Family Dollar stores to the Dollar Tree brand this year.

As part of the optimization, the company said it plans to sell alcohol at about 1,000 Family Dollar stores. Adult beverages were introduced at 45 stores in the first quarter.

Consolidated net sales increased 4.6% to $5.81 billion in the first quarter, while gross profit increased 1.6% to $1.73 billion, the company reported.

“I am proud of our team’s efforts throughout the first quarter,” Philbin said. “Dollar Tree delivered a solid 2.5% increase in same-store sales while cycling its toughest quarterly comparison from the prior year. And Family Dollar again demonstrated a sequential acceleration in comp sales.

“Dollar Tree continues to be a destination for customers looking for great values and convenience, as demonstrated by our 45th consecutive quarter of delivering an increase in same-store sales.”


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