Business

Why Dollar Tree raising prices above $1 isn’t necessarily all bad news for shoppers

dollar tree
Dollar Tree is breaking its $1 promise.

  • Dollar Tree’s decision to raise some prices above $1 isn’t necessarily all bad news for shoppers.
  • It can now offer more variety and better-quality items while keeping prices low, analysts say.
  • Price increases are inevitable at dollar stores, and Dollar Tree is still cheaper than competitors, they say.
  • See more stories on Insider’s business page.

Dollar Tree is about to get more expensive – but that’s not necessarily all bad news for shoppers.

The discount chain had long stood by its promise to cap all items at $1, but after testing new pricier products in some stores in 2019 it gradually rolled out this range to more locations. On Tuesday, it said it would begin testing $1.25 and $1.50 price points, too.

For investors, the benefits are clear: Higher prices could help Dollar Tree recoup rising costs from inflation, shipping, and labor, and ultimately boost profit margins.

On the surface, rising prices is a bad thing for customers, who could end up spending more on their regular shop. But there are some potential benefits, too.

Analysts say Dollar Tree’s commitment to its $1 price point has led it to scrap certain items it could no longer afford to sell, such as bleach, or to stock lower-quality versions of some goods as prices rise.

Its new flexibility on price could 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 the purchasing power of $1. Now, the company can offer products that it had to eliminate in the past such as bleach or cloth towels,” a group of UBS analysts wrote in a note to clients Tuesday.

Sticking to $1 has meant its items have become even more of a bargain over time because competitors have raised their prices. Even if Dollar Tree raises some prices marginally, it’s still likely to be far less expensive than many other retailers, these analysts said.

Customers are still, therefore, getting value – and potentially better-quality goods.

Dollar Tree hasn’t yet confirmed which new products it will add, or whether it will hike prices of existing items. Insider asked the chain for comment, but did not hear back.

Experts also say that price hikes are inevitable at most dollar stores, so consumers are likely to find far fewer items across major chains for just $1. By the chain committing to smaller price increases, such as $1.25 or $1.50, Dollar Tree customers are likely to be getting as close $1 prices as they can.

“Dollar Tree’s move to a multiple price point model is a big change. But it is also a necessary one,” Neil Saunders, managing director of GlobalData Retail, wrote in an email to Insider on Thursday.

“The shift may cause some confusion among customers and it may even deter some shoppers, but that will likely only occur at the margins.

“Most other dollar stores have successfully offered items above $1 for a long time. So long as the perception of value for money remains, there should be no real issue,” he said.

Read the original article on Business Insider

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