Dollar Tree Keeps Prices Low Despite Inflation
Dollar Tree’s Strategy
Inflation is driving up prices for everything from food to clothing. In spite of this trend, Dollar Tree (DLTR) is committed to keeping most items in its stores priced at $1 as it has for more than 30 years. That commitment may prove challenging given supply-chain issues and other difficulties as the economy recovers from the COVID-19 pandemic.
With demand surging and manufacturing costs rising, consumer goods companies including Procter & Gamble (PG) and General Mills (GIS) are passing the increased costs on to consumers. Dollar Tree has decided not to raise prices for its customers. The company wants to continue to find ways to purchase goods for about 43 cents each and then sell them for $1.
Dollar Tree Leverages In-House Brands
Most of the products on Dollar Tree store shelves are the company’s own brands. This gives Dollar Tree more flexibility in terms of pricing. During the pandemic, Dollar Tree moved to small, cheaper packaging for its metal over-the-door hangers, which reduced costs. It also began selling gift bags in packages of 72 instead of 24 to reduce shipping costs. Dollar Tree was even able to change the size and number of eggs in cartons to reduce costs.
Dollar Tree is also testing selling higher-priced products in its stores including basketballs and pillows which cost between $3 and $5. It is also creating so-called combination stores which house both a Dollar Tree and Family Dollar. The latter sells products in a variety of price ranges.
Investors Weigh In
Dollar Tree is confident it can maintain its low prices despite inflation, but investors aren’t so sure. Since Dollar Tree went public more than two decades ago, it has been operating in a low-inflation environment.
Now the company has to deal with rising prices from its suppliers as well as increasing labor costs. Launching higher-priced items is not expected to offset the increased labor costs and other rising expenses. This has caused some investors to raise concerns, but for now Dollar Tree is committed to its plan to keep prices low.
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