Dollar Tree will be increasing its price cap from $5 to $7 as it moves to capitalize on the growing demographic of high-income earners shopping at discount stores.
$7 Cap at Dollar Tree
Discount variety chain Dollar Tree has announced that it will be increasing maximum prices to $7 across all stores.
Fourth-Quarter Call
The change was declared to the public in the retail giant’s fourth-quarter earnings call on March 13.
“Multi-Price Assortment”
“This year, across 3,000 stores, we expect to expand our multi-price assortment by over 300 items at price points ranging from $1.50 to $7,” CEO Rick Dreiling declared.
Rapid Changes
The new price cap marks a swift change for Dollar Tree, which has maintained its $1 price average across most of its products, compared to discount competitors like Dollar General which now sells most items at a higher price.
$5 to $7
Changes began picking up in 2021 when $1.25 became the base price for most items. The maximum price was raised to $5 in June 2023, so the recent announcement makes for a significant change.
Multi-Price Point Strategy
Dreiling says the new announcement is part of a “multi-price point strategy,” one that aims to attract higher-income earners to the budget brand.
Demographic Changes
He also pointed to demographic changes amongst customers, saying that as of 2023 most shoppers at Dollar Tree and Family Dollar (which comes under the corporation’s umbrella) lived in households that earned more than $125,000 per year.
Increasing High Earner Customer Base
Dollar Tree executives defended the choice saying that this demographic of high-income earners was increasing the fastest, so it made sense to broaden their product base and price range.
Discount Stores a Viable Choice
Statistics show that as the cost of living in the U.S. continues to rise, high earners are turning in droves to shop at discount stores like the Dollar Tree.
4% Increase in 2 Years
Retailer traffic tracker InMarket found a 4% increase in people who earn over $100,000 shopping at dollar stores between 2022 and 2024.
“The Fastest-Growing Demographic”
“The fastest-growing demographic is north of $125,000 a year in income,” Dreiling said. “It’s not like the Northeast is strong and the West is weak. That boat is lifting pretty even all the way up.”
Variety of Prices
The chain will increasingly focus on offering a variety of products at different prices.
A Fully-Integrated Change
“Over time, you will also see us fully integrate multi-price merchandise more into our stores so our shoppers will find $5 bags of dog food next to our traditional $1.25 pet treats and toys, and our $3 bags of candy will be found in the candy aisle,” Dreiling elaborated.
Big-Ticket Items
The $7 price rise will mostly be applied to big-ticket items like food, beverages, pet care, and others.
$1.25 Will Still Be the Base
Drieling also went to pains to reassure shoppers that the base price of $1.25 would remain, saying that the majority of products would “remain at our entry-level fixed price point.”
Some Shoppers Frustrated
Shoppers have expressed frustrations over continuing price hikes at discount variety stores like Dollar Tree, Dollar General, and Family Dollar – three chains that have marketed themselves on their “$1 deals” for decades.
Financial Strain for Dollar Tree
However many are not aware that these systematic changes at Dollar Tree are connected to considerable financial issues that the chain has faced in the last few years.
1000 Stores Closing
On the same day that the price cap rise was announced, the company also declared its intention to close 600 Family Dollar stores in the next few months, with 370 (and 30 Dollar Tree stores) closing in the next few years.
Dollar Tree Underperforms
The closures are a result of the brand’s country-wide underperformance last year. They come almost a decade after a “botched” acquisition of Family Dollar back in 2015.
Unlocking Meaningful Value
“We believe rationalizing these unprofitable locations will help to unlock meaningful value at the enterprise level,” Dreiling said of the closures.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
