The last of the big dollar-store chains selling products for $1 or less, Dollar Tree, had announced that it’s raising its prices. This brings on the end of the $1-and-under selling concept in US retail.
What are the details?
The news was officially out on Tuesday when Dollar Tree made it public that it was “breaking the buck”, and raising its prices to $1.25, according to Insider. These prices were tested earlier this year at specific locations.
The announcement boosted stock price, as investors saw the potential for sales without the $1 restraint in item prices.
Dollar stores have been around for decades, but most of them diversified and raised prices to make up for inflation.
Dollar Tree didn’t until now. As the other chains kept on increasing their prices, Dollar Tree maintained its promise despite pressure from investors to add steeper prices.
The change came when it started to test a few higher prices in selected stores. They were called Dollar Tree Plus, and the featured items cost $3 or $5, similar to the products available in a Family Dollar store.
And then, the activist investor Starboard Value challenged its commitment to the $1 price in a letter to the CEO.
"Dollar Tree has kept its prices at $1.00 since its founding thirty years ago, despite the fact that $1.00 in 1986 is worth approximately $2.30 today, due to inflation,” the letter said.
Unfortunately, the rising labor and freight costs made it very hard for Dollar Tree to keep up its $1 prices.
CEO Michael Witynski revealed in a call on Tuesday that the move to $1.25 pricing will allow the chain to recover from higher costs and return to its usual profit margin of 35% to 36%.
Witynski has also promised that, for now, prices won’t go above $1.25, and everything will be straightforward for customers.