Dollar Tree’s one dollar promise may be going away as the U.S. tariff war with China continues to play out. The discount chain has been testing pricier products in its “Dollar Tree Plus” collection in an effort to increase sales. CultureBanx reported minority communities across the country may be shelling out more money as they battle rising prices from stores catered to low-end consumers, especially where the majority of its products are made in China.
The Breakdown You Need to Know
After PresidentTrump announced an increase in tariffs on $200 billion of Chinese goods last month, many retailers will pass down the costs to consumers. Since Dollar Tree manufactures about 40% of its products in China, they must find a way to manage costs. The discount retailer began initial testing of its higher priced items in May and noted they would expand to more than 100 urban, suburban, and rural Dollar Tree store locations, according to Business Insider.
“Even with these efforts, we believe our shoppers will be facing higher prices as 2019 progresses,” Dollar General’s CFO said.
Tariff Trap
The average Dollar Tree shopper comes from a household that earns $40,000 or less per year. In 2017, the U.S. Census Bureau released data showing the median income for an African American household was $39,490, putting them right in the Dollar Tree consumer sweet spot. It’s not just low income shoppers that frequent these dollar stores, customers with household incomes of more than $70,000 claim they also shop at discount retail chains.
Dollar Tree may want to take a page out of one of their top competitors playbook in an effort to make sure sales continue to rise. Dollar General plans to beef up its health and beauty sections, a space where African Americans spend nearly $54 million a year. Additionally, they’ve been targeting food deserts, areas not served by supermarkets or nearby grocers as its next great growth opportunity. The U.S. Department of Agriculture reported that 23.5 million Americans live in food deserts.
So far this year shares of Dollar Tree are down 6.5%, even after beating analysts earnings expectations last week. For its fiscal Q1, revenues came in at $5.1 billion, but the company lowered its Q2 and full year guidance as the brunt of the tariff hike is likely to hit them hard.
Other major retailers, including Costco and Walmart, warned the tariffs may cause a hike in prices. Last year Walmart rolled out a new pricing strategy to win over low-end consumers and dethrone the dollar store chains that have a dominant stake with this group. Financial firm Raymond James highlighted the price impact the lead retailer has on other discount chains and wrote “Walmart pricing for national branded consumables, which includes laundry detergent and cereal is now 4.4% lower compared to Dollar General and 6.5% below Family Dollar.”
