The last of the true “dollar” stores, Dollar Tree announced in late 2021 that some of its stores will begin charging more than $1 for some items.
Other stores, like Dollar Tree-owned Family Dollar, as well as competitors like Dollar General, made the move to higher price points long ago. Boundary breaking prices of $1.25 or $1.50 at Dollar Tree will still be significantly lower than the $1 to $10 range seen at other similar value chains.
This post is based on the Business Insider article, The Dollar Store is officially dead, by Mary Hanbury, September 30, 2021; the CNN Business article, Why Dollar Tree’s price hike to $1.25 could be ‘one of the worst decisions in retail history’, by Nathaniel Meyersohn, December 8, 2021; and the YouTube videos in the Spotlight. Image source: Zwiebackesser/Shutterstock.
1. Why is Dollar Tree increasing prices?
Guidance: For over 30 years, the Dollar Store has priced its products at a dollar. What a dollar can buy has changed greatly over the years. This has meant strategizing to keep operating expenses down, finding ways to source lower cost items, and probably changing the mix and quality of the items sold.
The Dollar Tree has long resisted raising prices. Recently, however, significant increases in the cost of freight and labor have necessitated a change. These elements of the external environment (suppliers and labor, as well as the economic, legal and political environment related to COVID) have caused Dollar Tree to respond by raising prices.
2. How will the price change affect Dollar Store’s strategy, and how does it compare to what competitors are doing?
Guidance: Although Dollar Tree is breaking the $1 barrier for the first time since it started three decades ago, the increase in price is very small. Its core competency of “value” will still remain the same. Whereas $1 in 1986 is equivalent to about $2.30 now, the new price points will be at most $1.25 to $1.50, which is significantly less than what most other value chains charge. Thus, it will still be able to continue its overall cost leadership strategy, offering value at low prices to the customer. These prices will continue to be significantly lower than those of most value chains with a “dollar” focus or name.
3. Does Dollar Tree have any experience at higher price point service design?
Guidance: Dollar Tree owns Family Dollar, which originally sold products for $2 or less, but now has a price range of $1 to $10. In about 2003, Dollar Tree Plus was launched. This store design sold products at $3 and $5 price points, in addition to the traditional $1 items. Thus, Dollar Tree has experimented with other service designs and price points, and the Dollar Tree stores will still stand out as offering lower overall prices than other value chains, whether they are company owned or not.