- Dollar Tree is quietly adding pricier products to the assortment at some of its stores.
- It is known for being the only major dollar store chain in the US to exclusively sell products for $1 and under.
- Dollar Tree manufactures around 40% of its products in China. Increased prices would help it to manage rising costs to import these products thanks to tariffs imposed by President Donald Trump.
Dollar Tree is the only major dollar-store chain in the US to have stayed true to the $1 promise, but this could be changing.
The retailer has been quietly testing its new Dollar Tree Plus! collection — a selection of products that cost over $1 — at certain stores since the middle of May.
In its first-quarter earnings release, which came out on Thursday, the company said that this initial testing will now be expanded to more than 100 urban, suburban, and rural Dollar Tree store locations.
"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. 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," CEO Gary Philbin said in the earnings release.
Dollar Tree’s business model is built around operating on a low-margin, high-volume basis. Its theory is that with rock-bottom prices, cash-strapped customers are able to buy more.
But in recent months, the company has been called out by analysts as being one of the most vulnerable to tariffs imposed by President Donald Trump.
Read more: These retailers could be worst hit by the trade war with China
This is because 40% of Dollar Tree’s products are sourced from China, and its unique business model means it does not have much room to absorb these costs without eroding margins.
"The tariffs are more difficult for Dollar Tree than rivals because the company has a one-dimensional business model that is not easily flexed or changed," Neil Saunders, managing director of GlobalData Retail, recently told Business Insider in an email.
Saunders is referring to Dollar Tree’s fixed $1 price point, which makes it almost impossible for it to increase costs on the consumer side without changing its entire business model. Moreover, as the very nature of its business is to be cost-cutting, there are very few ways to cut costs elsewhere.
"There is not much fat at any stage of the supply chain," Saunders said, comparing Dollar Tree to Dollar General or Walmart, which have more room to maneuver.
By shifting away from the $1 price point, it would have more opportunity to pass on the costs to the consumer.
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Source: Business Insider – feedback@businessinsider.com (Mary Hanbury)