Photo: Getty Images/KenWiedemann
Will Dollar Tree succeed as a dollar+ store?
Dollar Tree has decided that it can’t hold the line on its dollar pricing any longer. The retailer made known on Tuesday that it plans to raise prices on select items to $1.25 and $1.50.
Behind Dollar Tree’s decision are the rising cost of goods and customer demand for a wider selection of products. The retailer has expressed confidence in taking this pricing action after a test of dollar-plus price points in its new Combo and Dollar Tree Plus store formats.
“For decades, our customers have enjoyed the ‘thrill-of-the-hunt’ for value at one dollar — 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,” said Michael Witynski, Dollar Tree president and CEO. “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.”
The company is currently rolling out products above $1 across all of its Dollar Tree Plus units. Management plans to take it a bit slower at its legacy Dollar Tree stores and do further testing before taking the approach chainwide.
“We are a ‘test-and-learn’ organization which is what we are doing with this new initiative. We listen to our customers and believe it will make shopping with us an even better experience,” said Mr. Witynski. “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.”
Dollar Tree said it expects to have 500 Plus stores in operation by the end of the calendar year. The locations offer an assortment of products at $1, $2 and $5 price points. Dollar Tree has plans to add another 1,500 Plus units in 2022, building to a total of at least 5,000 by the end of 2024.
The company also has big plans for its Combo units, which combine elements of the retailer’s legacy and Plus stores to offer products at a wider range of price points. Dollar Tree wants to add another 400 Combo locations next year to its current 105 units and reach a count of 3,000 in the years to come.
Dollar Tree operated 15,865 stores across the U.S. and Canada as of July 31.
Discussion Questions
DISCUSSION QUESTIONS: What are the keys to successfully raising prices when selling to a value-driven customer base? Do you expect Dollar Tree to be successful in raising prices across all its banners?
Poll
Loading …BrainTrust
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
Richard Hernandez
Merchant Director
We have seen this play out time and again. Any retailer who ties their brand to a price point faces the inevitability of confronting the issue of offering higher priced goods in order to expand their selection and ultimately drive revenue growth. While remaining true to your value proposition is critical, I don’t think expanding to offer goods over $1 will be an issue at all – as long as Dollar Tree remains committed to their fundamental proposition. I expect this move will be very positive for Dollar Tree and their customers will appreciate a broader selection.
Raising prices on items that were previously $1 is not likely to be welcomed and it may, at least initially, cause some customer dissatisfaction. However Dollar Tree needs to take this step as its fixed price point model cannot work in a high inflation environment where costs are rising dramatically. And since prices are also increasing at other retailers, it’s not like customers are going to be able to shop around. Moving to a multi-price point model also gives Dollar Tree the flexibility to widen its assortment in many categories. As both Dollar General and Five Below have shown, customers can and will pay over $1 for items so long as the value for money ethos remains. Ultimately, this is a sound move for Dollar Tree – and it may have been accelerated by the pandemic, but it is one they were plotting long before 2020.
The point about “…widen its assortment…” is an important one. The other option for dollar stores would be to remove from their assortment all those products that they can no longer sell for a dollar and then, who would shop there? Cherry pickers?
These prices can’t stay this low forever. Sure consumers love the hunt for the value they can get for one dollar. But keeping the price at “one something” is a compromise that the retailer is making with their customer. The idea behind their store is low prices for their customer. If they continue to do that, I don’t think the customer will mind paying $1.19 or $1.49. The key is the value that comes with spending those extra pennies. That said, it’s only a matter of time (could be a few years) before they may need to think about changing the name to the “Two-Dollar Tree.” (I’m just kidding — or am I?)
Consumers may not care if dollar stores offer some products for $2, $3, $4, or even $5, as long as they feel like they are getting a deal. Just like the “five and dime” stores eventually increased their prices, so will dollar stores. The monetary classification of dollar stores will just become a connotation for a discount store.
This won’t be an issue at all with Dollar Tree. Although this retail segment has been called dollar store for ages, these stores actually fit into a larger segment called extreme value.
Several years ago the 99 cent store executed a similar plan in increasing some of their prices on a limited range of products. The keys to success here are to be true to the mission of offering extreme value and to clearly communicate prices on shelves and online so customers are not surprised. An exciting opportunity for Dollar Tree would be to venture into new categories and hot prices for new items while still pleasantly surprising their customers beyond expectations.
The key here will be to clearly mark the dollar+ area so customers aren’t surprised at checkout. People will welcome the expanded offerings and now they’ll have new reasons to visit Dollar Tree.
I remember years ago when the store count for the dollar stores was in the 3,000 range. Their growth and success has been absolutely phenomenal, and it will continue regardless of the increased price points of $1.25 – $5. The value promised to shoppers is still valid, even though someone will have to find another quarter or couple of dollars. This increase won’t drive this loyal fan base to other retailers for two primary reasons. First, most dollar stores are smartly demographically located, and second, where else can a shopper find so so many products at such low price points? Yes, dollar+ will thrive.
I have seen a lot of the dollar competitors slowly creep up over $1 for some items for some time now, so this is not a huge leap – they are just joining in with what is already being done. Same for what used to be five and dime stores.
Brilliant, just brilliant. I would be amazed if they received complaints from 1 percent of their customers. Most people walk into this “nirvana” of product presentations and find treasures at prices that make them want to sing the Dollar Tree fight song. AND 50 cents increases will be no problem. I would love an opportunity to sit down with Mr. Witynski!