Inflation has led discount retailer Dollar Tree to increase prices for the majority of products on its shelves for 2022. Instead of selling all its items at $1, the company announced a $1.25 price point for all Dollar Tree stores nationwide by the end of the fiscal first quarter in 2022.
The price increase comes as inflation, as measured by the consumer price index, hit 6.2% in October 2021 from last year. Retailers have also faced supply chain issues as port congestion, delays and staffing shortages have increased costs and complicated inventory supplies.
“Our Dollar Tree pricing tests have demonstrated broad consumer acceptance of the new price point and excitement about the additional offerings and extreme value we will be able to provide,” Michael Witynski, president and CEO of Dollar Tree, said in a statement. “Accordingly, we have begun rolling out the $1.25 price point at all Dollar Tree stores nationwide.”
Dollar Tree also reported its third quarter earnings, with consolidated net sales increasing 3.9% to $6.42 billion, from $6.18 billion in the prior year’s third quarter. Gross margin was 27.5% of net sales, compared to 31.2% in the prior year’s quarter. Dollar Tree reported margins fell due to higher freight costs.
The company noted its decision to increase prices to $1.25 is not based on short-term or transitory market conditions. Instead, it called the move a long-term and permanent strategy.
“The $1.25 price point, which will apply to a majority of Dollar Tree’s assortment, will enhance the company’s ability to materially expand its offerings, introduce new products and sizes, and provide families with more of their daily essentials,” Dollar Tree stated in its earnings report. “The company will have greater flexibility to continue providing incredible value that helps customers get the everyday items they need and celebratory and seasonal products Dollar Tree is best known for.”
Dollar Tree has been experimenting with new store formats with higher price points over the past few years, including through Dollar Tree Plus, which offers items from $3 to $5 and is promoted as a mix between Dollar Tree and Five Below. The company noted it planned to increase prices in September with this new store format.
The price increase may not be too much of a sticker shock to consumers, as 77% of shoppers surveyed by the retailer indicated they were almost immediately aware of the new price point when visiting the store. Plus, 91% of those surveyed indicated they would shop Dollar Tree with the same or increased frequency.
“Lifting the one-dollar constraint represents a monumental step for our organization and we are enthusiastic about the opportunity to meaningfully improve our shoppers’ experience and unlock value for our stakeholders,” Witynski added.