In a move that had many pundits running for the hills shouting about inflation, bargain retailer Dollar Tree announced this week that it would raise its baseline prices in all stores from $1 to $1.25.
While it’s true that inflation is currently at a 31 year-high, increasing 6.2% year-over-year in October, the current fearful narrative around Dollar Tree has been overblown and misleading. This will be the first price increase in the company’s three decade history, and a long time coming.
“This decision is permanent and is not a reaction to short-term or transitory market conditions” said Michael Witynski, Dollar Tree’s president and CEO in their third quarter earnings report. “[The] Company believes this is the appropriate time to shift away from the constraints of the $1.00 price point in order to continue offering extreme value to customers.”
When Dollar Tree began selling items in 1986, a dollar had the equivalent purchasing power of $2.25 today, according to the U.S. Bureau of Labor Statistics CPI inflation calculator. In 2020, prior to the current inflation scare, it had the purchasing power of $2.38.
Dollar Tree began testing an increase in prices years ago.The shift initially began in 2015 when the company acquired rival Family Dollar, a chain that had already priced items over the dollar mark. Through careful testing and rollouts, the company found that customers appeared unbothered by the increase. About 90% of shoppers surveyed this year by Dollar Tree in test rollouts indicated they would shop with the same or increased frequency despite the 25 cent price shift, according to the company’s earnings report.
Although the company explicitly said this week that their price change was not an immediate reaction to the current rate of inflation, Witynski did note that the increase would give the retailer “greater flexibility to manage the overall business, especially in a volatile, inflationary environment.” But he added that inflation has also driven more customers into the stores, helping business.
“We experienced a strong finish to the quarter, as shoppers are increasingly focused on value in this inflationary environment,” he said.
The company opened 125 new stores in the U.S. this quarter, at a rate of more than one a day, and saw sales rise by nearly 4% to $6.42 billion.
Dollar Tree’s pricing is not a proxy for inflation, nor should it be used as one. If it were, their consistent $1 pricing would indicate that inflation increased at a rate of 0% between their opening in 1986 and 2021, which is off by 252 points.
That’s not a great indicator.
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