After more than 35 years of selling its products at $1 per item, Dollar Tree has finally decided to raise its prices by 25%. The company said Tuesday that it would be marking up its prices at its nearly 8,000 stores across the U.S.
The company did not specifically mention the exact reason why it had decided to increase its prices, but the rising cost of manufacturing and transportation may be to blame.
Dollar Tree's chief executive officer, Michael Witynski, said that increasing prices is a "monumental step" for the company as it had always adhered to the one-dollar constraint for the past few decades. He added that by slightly raising its price point, the company should now have "greater flexibility" in handling the increasingly volatile inflationary environment.
Investors seemed to have agreed with Dollar Tree's decision as the company's stock surged by more than 9.2% to $144.71 per share following its announcement.
Dollar Tree said that shifting to the $1.25 price point business model has been in the works since last year. The company said that by increasing prices, it should also be able to reintroduce popular items that had to be removed from its shelves because they no longer met price caps.
The company said it had conducted tests where it sold other items costing more than $1 at some of its outlets. The company said that customer feedback has mostly been positive. The results of the tests had pushed the company to move ahead with its plans to raise prices as it found that most customers are willing to spend slightly more for the items they want.
During the pandemic, discount retailers like Dollar Tree and its main competitor, Dollar General, saw huge increases in sales and earnings. According to Coresight Research, they're also expanding quickly. Dollar Tree previously announced plans to launch 1,650 new sites this year, accounting for roughly half of all new national retail openings. While the economy may have tanked during the pandemic, consumer spending has stayed relatively stable. Dollar Tree launched 125 new locations in the most recent quarter, or more than one each day.
Dollar Tree reported Tuesday that its sales increased nearly 4% to $6.42 billion in the most recent quarter. Meanwhile, profits dropped 34% to $216.8 million, owing mostly to increasing freight expenses. Other costs have increased as well, such as wholesale pricing and labor pay.
