Dollar Tree Inc., the discount merchant famous for its single-price-point approach—an approach that has resulted in slowing momentum for the company as fast-growing rivals have touted more variety and the $1-for-everything strategy has come under under intense cost pressures—said this week that it would accelerate ongoing efforts to expand price points through its Dollar Tree Plus! initiative. Separately, the company will begin testing higher price points on merchandise at legacy Dollar Tree stores.
The Plus! departments are helping to bring Dollar Tree additional product sizes and category variety, with expanded availability of selections in areas such as crafts, home décor, kitchen goods, toys and cleaning supplies at price points of $3 or $5. The Chesapeake, Va.-based retailer has previously said Dollar Tree Plus! would reach 500 of its Dollar Tree stores this year. The announcement this week said that 1,500 more stores are planned for fiscal 2022, and at least 5,000 are expected to open by the end of fiscal 2024.
Officials framed the separate move to test additional price points at legacy stores—$1.25 and $1.50 were mentioned—as a means to expand assortments over time while maintaining a promise to bring shoppers a value-focused, treasure-hunt experience.
“For decades, our customers have enjoyed the ‘thrill-of-the-hunt’ for value at $1—and we remain committed to that core proposition—but many are telling us that they also want a broader product assortment when they come to shop. 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,” Michael Witynski, president and CEO, said in a release.
For decades, Dollar Tree’s single-price-point philosophy gave the company a unique market offering while allowing the company control over margins. But that has become difficult amid wild material and freight inflation on imported goods. In moving to raise its prices, the company is “obviously responding more aggressively to the unprecedented product cost and labor inflation that is impacting all retailers, but is especially impactful for the [Dollar Tree] banner,” according to a research note issued to clients this morning from Barclays’ analyst Karen Short.
“Certainly, the cost pressures that [Dollar Tree Inc.] is facing today in the aftermath of a global pandemic are unlike anything the company has seen over the many decades it has operated at the single $1 price point,” Short’s note continued. “In theory, there is no better time to introduce higher price points at DT on a much broader scale, especially given [that] some competitors have already started to take pricing.”
These latest moves accompany a separate initiative launched last year to open “combination” stores that leverage sister brand Family Dollar in a dual-branded store format that brings the $1 price point to rural markets previously thought too small to support a single-price point merchant, along with Family Dollar’s legacy EDLP variety.
Family Dollar-Dollar Tree “Combo Stores”—primarily renovated and re-bannered Family Dollar locations—currently number 105, but officials said 400 are on the way in 2022, with the potential of as many as 3,000 over the next several years.
Dollar Tree, which operates nearly 16,000 stores across 48 states and five Canadian provinces, has been growing at a slower rate than rivals like Dollar General in recent years. It acquired the multi-price-point merchant Family Dollar—a more-direct competitor to Dollar General—in 2015. Dollar General is considered a “best in class” discounter and is growing quickly behind expansions into categories such as fresh food.
“We are a ‘test-and-learn’ organization which is what we are doing with this new initiative,” Witynski added. “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.
“Our brand promise is that customers get great value for what they spend at Dollar Tree,” he continued. “We will continue to be fiercely protective of that promise, regardless of the price point, whether it is $1.00, $1.25 [or] $1.50.”
Investors—some of whom have long pressured the company to consider introducing higher pricing for years—appeared to react favorably to the announcement. Dollar Tree stock was up nearly 15% in early trading Wednesday.