- Dollar Tree’s decision to raise some prices above $ 1 is not necessarily all bad news for shoppers.
- It can now offer more variety and better quality goods while keeping prices low, analysts say.
- Price increases are inevitable in dollar stores, and Dollar Tree is still cheaper than competitors, they say.
Dollar Tree is getting more expensive – but that’s not necessarily all bad news for shoppers.
The discount chain had long stood by its promise to put all items at $ 1, but after testing new more expensive products in some stores in 2019, it gradually rolled out this range to more locations. On Tuesday, it said it would also start testing $ 1.25 and $ 1.50 price points.
For investors, the benefits are clear: Higher prices can help Dollar Tree recover rising costs from inflation, shipping and labor, and ultimately increase profit margins.
On the surface, rising prices are a bad thing for customers who may end up spending more on their regular store. But there are also some potential benefits.
Analysts say that Dollar Tree’s commitment to its $ 1 price level has caused it to scrap certain items it could no longer afford to sell, e.g. Bleach or to store versions of certain lower quality goods when prices rise.
Its new flexibility in price can give it more room to expand its range for customers: more variety, more products and more brands.
“The fixed price point has become restrictive over the years as inflation has eroded purchasing power of $ 1. Now the company can offer products it previously had to remove, such as bleach or towels,” a group of UBS analysts wrote in a note to customers on Tuesday .
Sticking to $ 1 has meant that its goods have become even more of a bargain over time because competitors have raised their prices. Although the Dollar Tree raises some prices marginally, it is still likely to be far cheaper than many other retailers, these analysts said.
Customers therefore still get value and possibly goods of better quality.
Dollar Tree has not yet confirmed what new products it will add or whether it will raise the prices of existing items. Insider asked the chain for comment but did not respond.
Experts also say that price increases are inevitable in most dollar stores, so consumers are likely to find far fewer items across larger chains for only $ 1. By the chain committing to smaller price increases, such as $ 1.25 or $ 1.50 , Dollar Tree customers are likely to get as close to $ 1 prices as they can.
“Dollar Tree’s shift to a multi-price model is a big change. But it’s also a necessary one,” Neil Saunders, CEO of GlobalData Retail, wrote in an email to Insider on Thursday.
“The shift may cause confusion among customers, and it may even deter some customers, but it will probably only happen at the margins.
“Most other dollar stores have been successfully offering items over $ 1 for a long time. As long as the perception of value for money remains, there should be no real problem,” he said.