Why Dollar Tree Has Branched Out Beyond $1 Pricing

Dollar Tree DLTR has decided that it can no longer hold the line on its dollar pricing. The retailer made known last week 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.

In an online discussion last week, many of the industry experts on the RetailWire BrainTrust saw a high likelihood that the change would be accepted without complaint by customers. 

“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,” wrote David Naumann, marketing strategy lead, retail, travel & distribution at Verizon VZ .

“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,” wrote Richard Hernandez, director of Main Street Markets. “Same for what used to be five and dime stores.”

“This won’t be an issue at all with Dollar Tree,” wrote Brian Cluster, director of industry strategy, CPG & retail at Stibo Systems. “Although this retail segment has been called dollar store for ages, these stores actually fit into a larger segment called extreme value.”

“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.

“The key here will be to clearly mark the dollar+ area so customers aren’t surprised at checkout,” wrote Cathy Hotka, principal at Cathy Hotka & Associates. “People will welcome the expanded offerings and now they’ll have new reasons to visit Dollar Tree.”

“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.

Though BrainTrust member Neil Saunders, managing director at GlobalData, saw the change as inevitable, he did not believe it would necessarily be so well received as others panelists did. 

“Raising prices on items that were previously $1 is not likely to be welcomed and it may, at least initially, cause some customer dissatisfaction,” wrote Mr. Saunders. “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 … 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.”