New York CNN Business —
In 1986, three retail veterans opened a chain of stores in the southeast named Only $1.00. They were building upon the concept of a store they had stumbled across called Everything’s A Dollar, and thought they could do it better.
But Everything’s A Dollar wasn’t so thrilled to welcome the competition, so the company sued, forcing Only $1.00 to change its name. The executives came up with a different name: Dollar Tree.
For 35 years, Dollar Tree (DLTR) sold toys, home furnishings, kitchenware, holiday decorations, stationary, party supplies, arts and crafts, books, food and household essentials for $1. Dollar Tree (DLTR) plastered big green and yellow “Everything’s $1” circles throughout its nearly 8,000 US stores (Dollar Tree (DLTR) purchased the trademark of the brand that had once sued it).
“I viewed the dollar-only concept as sacred. It was everything. Without it, we’d be just another discount retailer,” Macon Brock, a Dollar Tree founder, said in his 2017 autobiography “One Buck at a Time.”
Dollar Tree was originally named Only $1.00 in 1986.
“Ditch the dollar, I believed, and we’d surrender our niche,” Brock wrote.
Brock said he didn’t know how long Dollar Tree could stick to selling everything for $1: Inflation made it more challenging every year. But, as recently as August, Dollar Tree chief executive Michael Witynski said the company was committed to that price.
“This dollar price point is going to be more important than ever,” Witynski said. $1 “is going to look good.”
Just three months later, Dollar Tree changed course.
The company said late last month it was throwing away those Everything’s $1 signs and walking away from its 35-year brand identity, announcing plans to raise prices to $1.25 on the vast majority of its merchandise at all stores by around May 2022.
“This is the appropriate time to shift away from the constraints of the $1.00 price point,” the company said in a news release.
But the decision to raise prices by 25% is a huge gamble for the company. Its future hinges on how customers respond to the end of $1 deals after 35 years.
Some retail analysts say the decision was rushed and will backfire, alienating loyal Dollar Tree customers who shopped there specifically because prices were a dollar. Some bet the chain’s primary competitor, Dollar General, will undercut Dollar Tree by selling more products for $1. Others question if a company that has struggled even as its discount competitors boomed — Dollar Tree is on its third CEO in six years — can effectively execute such a significant strategy change.
“It will be a shock to a loyal customer base,” said Scott Mushkin, a founder and analyst at R5 Capital, a retail research and consulting firm. “It could end up being one the worst decisions in retail history if it is not dialed back.”
David D’Arezzo, a former chief merchant at Dollar General and an executive at pharmacy and supermarket chains, said the move “destroys 35 years of brand equity in one fell swoop.”
Dollar Tree did not respond to requests for comment on this article.
‘As easy as spending money could be’
Dollar Tree, based in Chesapeake, Virginia, was the last of the big dollar store chains to actually sell products for a dollar.
Dollar General, Family Dollar — which Dollar Tree purchased in 2015 — 99 Cents Only, and Canada’s Dollarama have sold products for more than $1 for years.
But Dollar Tree has a different model and customer base than those brands. Its approximately 8,000 square-foot stores, dotted amid strip malls, are typically found in suburban areas and target middle-income shoppers.
Dollar Tree is also designed to draw a different type of shopping visit.
While customers primarily head to Dollar General or Family Dollar when they run out of items like milk or paper towels, Dollar Tree attracts shoppers who want to have a little fun and hunt for a quirky gift or items that might look good in their living room — for a buck.
Selling everything for $1 was also easy on store operations. Workers didn’t have to constantly spend time changing price displays in aisles or tags on shelves, and it was simple for customers on tight budgets to keep track as they shopped around. Ten things in your shopping basket? That’s ten dollars .
“When a customer walked into our store, she could shut off her brain. She didn’t have to think, didn’t have to calculate how much she was spending,” Brock said in his autobiography. “It made the transaction as easy as spending money can be.”
The challenges of $1
But there were drawbacks to the rigid $1 strategy. Because Dollar Tree couldn’t raise prices, it was more vulnerable to cost increases than competitors who had the ability to pass them off to customers.
One-dollar prices were a “trap” for Dollar Tree, said Mark Cohen, director of retail studies at Columbia University’s business school and a former executive at Sears. “You can’t sustain the business at that level.”
The company’s model may have worked over the past few decades when inflation was basically nonexistent. But it became more challenging for Dollar Tree to maintain profitability when labor, transportation, fuel, merchandise and shipping costs surged — as they are today.
Dollar Tree's well-known $1 circle signs, seen here in 2014, are being replaced with new $1.25 circles.
Those rising costs have squeezed Dollar Tree’s profits and margins. During the first three quarters of 2021, the chain’s profit margin dropped 1.5% from the same stretch last year. The falloff was particularly steep last quarter, down 4.7% percent from the same quarter a year ago to around 30%.
Dollar Tree said that the move to raise prices will help combat higher costs and return the brand to its typical profit margin of around 35% next year.
Additionally, when inflation spikes, Dollar Tree faces increased pressure to grow sales to cover higher costs, or alter its merchandise — including by shrinking sizes.
But Dollar Tree’s sales have grown at a slower rate in recent years than at its discount competitors, including Dollar General (DG), Walmart (WMT), TJX (TJX), Five Below (FIVE) and others.
Dollar Tree’s inventory also suffered from having to keep everything under $1. The chain discontinued several “customer favorites,” the company said, particularly in packaged and frozen foods and household essentials.
Raising prices will give Dollar Tree flexibility to reintroduce those items, expand its selection, and bring in new products to draw customers, the company said.
Breaking the buck
Dollar Tree had taken steps in recent years to raise prices on some items.
In 2019, after an activist investor built a stake in the company and pressured it to hike prices or sell off its struggling Family Dollar arm, Dollar Tree announced it would begin testing higher prices at some stores — an initiative that became known as Dollar Tree Plus, with products at $3 and $5.
The company has also launched a new concept of joint Dollar Tree and Family Dollar stores in rural towns that have a mix of Dollar Tree items for $1 and higher-priced Family Dollar merchandise.
The Dollar Tree Plus sections and combination stores have shown promising results, and in September, Dollar Tree said it would start selling items at $1.25 and $1.50 in hundreds of stores with Dollar Tree Plus sections, as well as at select legacy Dollar Tree stores.
Two months later, the company said it was raising prices on the majority of its products to $1.25.
Dollar Tree says it has gotten positive feedback from customers at stores testing $1.25 prices and saw a sales lift at those locations — but the benefit was partially offset by a small decline in the number of products sold.
Dollar Tree also conducted independent surveys with shoppers, 91% of whom said they would shop at Dollar Tree “with the same or increased frequency” with higher prices, CEO Mike Witynski said on a November earnings call.
Customers were “telling us that even at the $1.25, there’s still great value and they’re going to continue shopping here,” he said.
‘Rushed, untested’
Dollar Tree may not have been able to hold prices at $1 forever. But some analysts criticized the route the company took, the speed at which it erased a 35-year strategy, and the risks it opened up with shoppers and competitors. Some say moving to $1.25 jeopardizes the brand’s clearly-defined image.
”[$1.25] doesn’t have any connection of value like a dollar does,” Cohen said. “I don’t think it triggers the same draw in the mind and heart of a customer.”
When Dollarama, the Canadian discount store giant, raised its prices above $1 for the first time in 2009, it did so on new products, so consumers could see the value they were getting for their extra money, said Kelly Bania, a retail analyst at BMO Capital Markets.
Dollar Tree isn’t doing that. Instead, it’s immediately charging 25% more for its existing merchandise. This may create confusion for customers, Bania said, and leave some shoppers puzzled as to why they’re paying 25% more for the same item they just bought for $1.
Some retail experts say Dollar Tree's move to raise prices jepordizes its identity with customers.
When retailers make a pivotal changes, they often conduct months or even years of tests through different seasons, economic conditions and other variables that might impact consumer behavior. Dollar Tree, for example, has spent more than a year testing $3 and $5 products in select Dollar Tree Plus sections before rolling them out more broadly.
But Dollar Tree made the switch just two months after announcing the $1.25 and $1.50 test. This was not enough time to understand the full impact the change would have on shoppers, analysts said.
“Based on Dollar Tree’s track record of testing and learning, this was announced and rolled out at a much faster pace than you would think for such a big decision,” Bania said. “The execution of it does feel rushed, untested and adds risk.”
Although Dollar Tree said sales grew at stores where it tested $1.25 prices and customers responded favorably, it came when demand for goods was red hot heading into the holidays, wages were rising, and many customers had more cash to spend thanks to federal stimulus checks.
It is unclear how Dollar Tree shoppers will respond to $1.25 prices when they aren’t buffeted by federal stimulus or when the gap between supply and demand normalizes.
An opportunity for Dollar General
Price remains the most significant factor for many Dollar Tree shoppers and moving away from $1 may drive them elsewhere.
Dollar Tree’s decision was “reckless and unnecessary,” Mushkin said in a note to R5 Capital clients. An October R5 survey of 550 customers found that roughly 32% would shop at Dollar Tree less often if stores offered products for more than $1. Around 5% said they would stop shopping at the store altogether.
Dollar prices were the brand’s “ace in the hole,” and Dollar Tree could have taken other steps such as adding “Beyond $1” sections, Mushkin said. Five Below, the $5 and under discount toy and game story, did this in 2019 when it started selling some items for up to $10 in “Five Beyond” sections. Dollar Tree could have also introducing two items for $3 deals.
“They simply don’t need to raise prices on everything to get this done,” Mushkin said.
Dollar General may be able to capitalize on Dollar Tree’s decision to raise prices. Thousands of Dollar Tree stores are located near Dollar General locations, and the chain could pick off some disgruntled Dollar Tree customers looking for $1 items.
Dollar General sells around 20% of its products for $1 and highlighted the role of this merchandise in its strategy to reach low-income customers during an earnings call last week.
Products “at the $1 price point are important for our customers, and they will continue to have a significant presence in our assortment,” Dollar General CEO Todd Vasos said on an earnings call last week.
Dollar Tree has moved on from $1. But Vasos said Dollar General is “not walking away from a $1 price.”
FAQs
How does Dollar General keep costs low enough to maintain its low prices? ›
Packages items in small quantities.
Dollar General sells goods in small quantities instead of in bulk to keep the cost of each transaction low. While the costs remain below $10, it may look like you're getting a better deal, but you are probably spending more per ounce or per item.
Dollar Tree said that its decision to raise prices permanently was "not a reaction to short-term" inflation, but the change will help Dollar Tree return to its typical profit margin of around 35% next year.It will also help Dollar Tree offset rising costs.
Is Everything a Dollar at the Dollar Tree? ›That's right—despite the name, not all dollar stores sell every item in the store for just a dollar or less. Dollar Tree is an actual dollar store (for the most part). The company recently announced it will sell items in certain locations for more than its typical $1 price.
What is the name of the store where everything is $1? ›Mighty Dollar is a true dollar store. The homepage of the retailer's website proclaims “Everything's $1.00.” So if you want the freedom of shopping while knowing that every item will add just $1 to your sales ticket, this is the place to go.
Why Dollar Tree selling items at more than a dollar? ›The company attributes its price increases to supply chain issues, "higher freight costs and other inflationary pressures." This marks the end of a discount era as Dollar Tree has been known for selling items for no more than $1 for more than 40 years.
Why did dollar store prices increase? ›Dollar Tree raised prices because its business was pressured by having to keep everything under $1. Labor, transportation, fuel, merchandise and shipping costs have surged, squeezing the company's profits. Some merchandise also suffered as a result of the $1 strategy.
When did Dollar Tree decide to raise prices? ›Yes, the new $1.25 price point is permanent. Dollar Tree started rolling out the $1.25 base price at their stores in late 2021, with all stores converted to the new price tag during the early part of 2022. However, the chain was already testing the waters with higher price points well before this change.
Why can Dollar Tree sell so cheap? ›Sometimes, products hit the dollar stores because of damage or lack of freshness. BUT, they are often just offered cheaper because they operate on slimmer margins than grocery stores. Many items were surplus or overstock items from a company.
Did Dollar Tree lose customers? ›Well, not all shoppers are happy about it. Dollar Tree saw a “meaningful decline” in shoppers following the price hike, according to a Jan. 11 note from industry tracker Coresight Research.
Does Dollar Tree charge more than a dollar? ›The company recently announced it will sell items in certain locations for more than its typical $1 price. This isn't totally new for Dollar Tree, though; they've tested “Dollar Tree Plus” sections at several hundred of its stores, where they sell items that could have a $5 price tag.
What's the difference between Dollar Tree and Dollar General? ›
First and foremost, Dollar Tree sells only products that are $1 or under, whereas Dollar General, which once did the same, is now more like a discount retailer.
What you should always buy at Dollar Tree? ›- Seasonal Decor. ...
- Vases. ...
- Mixing Bowls. ...
- Dinnerware. ...
- Drinkware. ...
- Pregnancy Tests. ...
- Greeting Cards. ...
- Picture Frames.
Once seen as dumping grounds for liquidated and off-brand merchandise, today's dollar stores often buy their inventory from major manufacturers such as Procter & Gamble, Hanes, Unilever, Coca-Cola, Energizer, Crayola and General Mills.
What is the dollar section at Walmart called? ›However, there might be another section you can check out at your local Walmart. This is known as the “dollar shop,” as revealed by TikToker arit_shops, or Ariane.
Which is better Dollar Tree or Family Dollar? ›In her experience, “Dollar Tree offers a wider variety of products for a single dollar, while Family Dollar has a more limited selection but often offers sales and discounts.”
Why did Dollar Tree raise their prices to a dollar 25? ›The increase will help the discount retailer navigate 'a volatile, inflationary environment,' executives say. Dollar Tree, which for 35 years has sold everything for $1, is raising prices by a quarter.
Does shopping at the dollar store save money? ›Just because an item is priced lower at the dollar store doesn't necessarily mean you're saving anything. Discount stores may offer what looks like the same product for less but they may actually be more expensive. Doing some comparison shopping before you buy can ensure that you're getting the most bang for your buck.
What is Dollar Tree's target market? ›Dollar Tree provides a customer base of general consumers with a range of products at discounted prices. The Company's Dollar Tree and Family Dollar-branded stores are targeted generally at lower income consumers, typically located so as to serve local communities.
Why is everything $1.25 at the dollar store? ›The move to a $1.25 price point contributed to "both sales and margin improvements," he said. "Shoppers are responding favorably as the new greater value products hit our shelves." Dollar Tree's comparable sales in the quarter rose by 11.2%.
Is Dollar Tree affected by inflation? ›Record high inflation is all around - at the pump, at the grocery store, when you're buying clothes, when you go out to eat, if you can still afford to go out to eat. It's also crept onto the shelves of discount stores like Dollar Tree, Dollar General, Family Dollar, where price tags are supposed to be low.
Are dollar stores increasing prices? ›
While not everything in Dollar General costs $1, around 20 percent of its inventory does and the chain recently said that it will never increase prices on that assortment, according to CSP Daily News. In fact, Dollar General intends to expand its $1 selection.
Is the Dollar Tree worth it? ›"It's a great place to make your dollar go further and stretch your budget," she said. With such low prices, it can be tempting to want to buy everything at Dollar Tree. However, some products are better than others. With that in mind, here are 15 items to buy at Dollar Tree and 15 items to skip.
Is Dollar Tree making money? ›According to 2012 figures, Dollar Tree captured 35 cents of profit for each dollar of revenue compared to 24.1 cents per dollar at Walmart. For third quarter 2021, figures remained comparable. Dollar Tree had a gross profit margin of 27.5 percent of net sales, while Walmart's was 25 percent.
Why are brand names cheaper at the dollar store? ›“Dollar stores today carry some of the top brand-name shampoos, face washes and lotions, and sell them at a lower cost because they operate on lower margins.”
Who is Dollar Trees biggest competitor? ›Dollar Tree competitors include Walmart, SUPERVALU, Dollar General, Family Dollar Stores and 99 Cents Only Stores. Dollar Tree ranks 2nd in Diversity Score on Comparably vs its competitors.
Who is Dollar Tree owned by? ›...
Canada.
| Formerly | Dollar Giant (2001–2010) |
|---|---|
| Parent | Dollar Tree (2010–present) |
| Website | www.dollartreecanada.com |
But those numbers could change quickly because the turnover rate at Dollar Tree is relatively high. Employees at Dollar Tree stay with the company for an average of 2.6 years before leaving. The average employee at Dollar Tree makes $29,519 per year.
What is Dollar Tree pricing strategy? ›The supply-chain upgrades are also coming as Dollar Tree resets its consumer pricing strategy, with plans to roll out items listed at $3 and $5 to more stores after lifting its pricing cap for many goods by a quarter last year to $1.25.
What is the highest price at Dollar Tree? ›Dollar Tree prices items at $1.25+, with the Dollar Tree Plus stores selling items for as high as $5.00 each. Family Dollar prices operate more like a traditional grocery store, with some items even going for over $20.
How much does the average customer spend at Dollar Tree? ›In February 2022, Dollar Tree, Inc customers spent an average of roughly $17 per transaction, 11 percent higher than the year before and 23 percent higher than two years ago.
Which is better Dollar Tree or 99 cent store? ›
...
99 Cents Only Stores vs Dollar Tree.
| 44% | Promoters |
|---|---|
| 13% | Passive |
| 43% | Detractors |
The short answer is that Dollar General and Dollar Tree are separate companies. They're competitors, just like Walmart and Target, CVS and Walgreens, or AT&T and Verizon.
Are Dollar Tree and Family Dollar owned by the same company? ›"We are pleased to announce we have completed our acquisition of Family Dollar and we formally welcome the Family Dollar team to the Dollar Tree organization," stated Bob Sasser, Chief Executive Officer in the release. Read the full release HERE. So we can verify, Family Dollar is owned by Dollar Tree.
What is the most successful dollar store? ›Just like in net sales and the store count, Dollar General leads the way in consumer loyalty among U.S. dollar store brands, although Dollar Tree follows closely behind.
Why is dollar store so popular? ›Shoppers of all income levels are going to dollar stores – though the average income of its customers is about $40,000 a year per household – because they believe that's where they can save the most, especially with inflation hitting a 40-year high of 8.5%, according to Fred Floss, a Buffalo State College economist and ...
How much does a CEO Dollar Tree make? ›In this article, Doyle states that the research firm Telsey Advisory Group estimates that approximately 42 percent of the products that Dollar Tree sells are made in China. About 23 percent of what Family Dollar sells is imported merchandise, much of it from China.
Can you buy the dollar store for a dollar? ›While you'll be hard-pressed to find a dollar store where everything is actually $1 — unless you're near a Mighty Dollar location — it is possible to still purchase $1 items at dollar stores.
What do British people call the dollar store? ›Turns out, the UK version of the Dollar Tree is called, "Poundland," and you can't make this kind of stuff up.
What is the dollar store concept? ›US. : a store that sells inexpensive items priced usually at a dollar or a few dollars. Inflatable balloons, holiday decorations, toothbrushes and spices are some of the best deals you can buy at the dollar store.
What does the symbol at the end of Walmart mean? ›
But did you know that each of the 6 parts of the spark are officially called 'sparklets'? Us neither – and we're not sure how we feel about it. According to Walmart, the sparklets (sorry) represent the customer, respect, integrity, associates, service, and excellence. RECOMMENDED VIDEOS FOR YOU... More Videos.
Who pays more dollar or family tree? ›Salaries. Of the top 3 common jobs between the two companies, Family Dollar Stores salaries averaged $1,015 higher than Dollar Tree.
What is the difference between dollar store and Family Dollar? ›Dollar General has the word “dollar” in its name, but everything in the store doesn't go for a buck; their merchandise is just low priced. Family Dollar is another chain that has the word “dollar” in its name but sells items for more than a buck.
What is the difference between Dollar Tree and Dollar Tree Plus? ›Dollar Tree recently launched a brand NEW section at select stores called “Dollar Tree Plus” that offers oodles of $3 and $5 items ~ sort of like a mix between Five Below and Dollar Tree! Dollar Tree plans to have 500 Dollar Tree Plus stores by the end of 2021 and another 1,500 stores are planned for fiscal 2022.
How does Dollar General sell stuff so cheap? ›Dollar stores can sell the SAME items as grocery stores for cheaper because they have class-B or C locations, so they pay much lower rent than class-A locations. They also have a small, low-wage staff, that's usually only about 10 employees per store.
What competitive advantage does Dollar General have? ›The following competitive advantages also help Dollar General grow its market share over the long term: largest brick-and-mortar footprint in the U.S. lower-cost small-store format. superior invested capital turns compared to peers.
How does a dollar store stay in business? ›Dollar Tree will usually buy out almost expired goods from other companies so that they can be sold cheaply and still have a profit made on them when other stores do not want the inventory.
Is Dollar General in financial trouble? ›Based on the latest financial disclosure, Dollar General Corp has a Probability Of Bankruptcy of 14.0%. This is 61.3% lower than that of the Consumer Defensive sector and 32.43% lower than that of the Discount Stores industry.
Who is bigger Walmart or Dollar General? ›Dollar General's brand is ranked #335 in the list of Global Top 1000 Brands, as rated by customers of Dollar General. Their current market cap is $48.43B. Walmart's brand is ranked #104 in the list of Global Top 1000 Brands, as rated by customers of Walmart. Their current market cap is $382.64B.
What is retail management in Dollar General? ›The role of a Dollar General store manager is one that requires a great deal of responsibility and accountability. They are tasked with overseeing all aspects of their stores' operations, including merchandising, staffing, customer service, inventory management, and more.
Is Dollar Tree a profitable business? ›
Conclusion. With a market cap of about $37.38 billion, Dollar Tree leads in the Discount Stores Industry. Dollar Tree has a large net income and gross profit margins.
Is Dollar Tree a profitable company? ›Dollar Tree gross profit for the twelve months ending July 31, 2022 was $8.377B, a 5.93% increase year-over-year. Dollar Tree annual gross profit for 2022 was $7.737B, a 0.65% decline from 2021. Dollar Tree annual gross profit for 2021 was $7.788B, a 10.62% increase from 2020.
Who is the Target market for Dollar Tree? ›Customer Segments
Dollar Tree provides a customer base of general consumers with a range of products at discounted prices. The Company's Dollar Tree and Family Dollar-branded stores are targeted generally at lower income consumers, typically located so as to serve local communities.
On its website, Dollar General said the first DG Market opened in 2003 and offers everything a traditional Dollar General sells in addition to providing fresh like meats and produce. In addition to bananas, the store will carry apples, lettuce, strawberries and broccoli.
How much does a dollar store owner make a year? ›Dollar stores may make up to $. 80 profit on items they sell, though the average is about $. 35 for each item. This means a dollar store would have to sell 200,000 items a year to make around $70,000 in profit.
How much money do you need to open a dollar store? ›A 10-year franchise commitment is also required. Dollar Discount Stores of America requires a total startup investment of $73,000 to $146,000. Owners must have at least $20,000 in liquid capital, as well as good credit and collateral.