The price hike is on. But how much is too much? Will it affect shoppers? The company’s profits? How does it affect the brand’s image? Here’s an analysis of the impact of the price increase on consumers. You can read about the changes at Dollar Tree. And then, make your own decision on whether you want to shop at this store again. But remember that this price hike will only affect some items. Many consumers have already expressed their concerns.
Price hike
As the economy struggles, a low-cost retailer like Dollar Tree is under pressure. Their high prices have prompted outrage among many consumers, especially the low-income population. In an interview with NPR’s David Folkenflik, Harvard Business Professor Willy Shih said the recent price hike is a reflection of the overall state of the U.S. economy. But, what exactly is driving Dollar Tree’s price hike?
One reason for the hike may be a reaction to rising wages and merchandise costs. The retailer recently implemented a price hike of $1.25 in U.S. stores, two months ahead of schedule. While it is unclear whether or not the strategy will work long-term, the $1.25 hike confirms its earlier tests. Dollar General, meanwhile, is cutting its annual profit and sales forecasts, as well. It will report fourth-quarter earnings on March 17.
Impact on shoppers
The decision to raise prices at Dollar Tree is controversial. While it is common for retailers to test pivotal changes over several months and even years, this one is reckless and unnecessary. In a recent survey, R5 Capital asked 550 consumers whether they would stop shopping at Dollar Tree if prices were increased. Nearly 30% of respondents said they would not go back to the store after the increase. Some critics are questioning Dollar Tree’s speedy decision to eliminate a 35-year-old strategy.
Consumer surveys suggest that wealthier customers may suffer the most from the company’s pricing strategy. The company’s new pricing strategy has made them less likely to return, while lower-income shoppers have been the most loyal customers. Dollar Tree’s price increases are likely a result of inflation, which most consumers are concerned about. According to the same survey, 89% of shoppers are concerned about rising inflation. But these numbers are not indicative of a general downward trend in the company’s stock price.
Impact on company’s profits
The impact of Dollar Tree’s rising prices on profits is a common theme for the discount industry. Fuel costs are causing the prices of many items to rise and the company is worried that higher prices will impact the bottom line. Dollar General, a smaller discount retailer, has not made the same predictions but has warned that the costs of fuel and freight will take a bite out of its profits. A quick comparison of Dollar Tree and Dollar General shows that the latter has higher profit margins than the former.
Dollar Tree Inc. is widely known for selling most goods for a dollar. Its pricing model has helped the store to attract loyal shoppers looking for bargains. However, with rising costs, the company is less able to control the prices than its rivals. Transportation rates, wages, and the cost of raw materials are rising. This is one of the main reasons why the company has raised prices. This will allow Dollar Tree to reintroduce its most popular items and broaden its merchandise selection.
Impact on brand’s image
With the recent price hikes at Dollar Tree, the retailer is experimenting with an unusual pricing model. As costs for materials, transportation and workers continue to rise, manufacturers are reluctant to pass those costs on to shoppers. While some manufacturers are betting that the inflation challenge will pass, others argue that consumers simply are not willing to pay more for their purchases. The dollar tree’s recent price hikes have prompted some analysts to question whether it’s wise to stick with the $1 price tag.
A recent survey from CivicScience found that the brand’s favorability has increased by 13 percentage points since Q1 of 2014. While nearly half of U.S. adults say they “like” or “love” shopping at Dollar Tree, only about a third (29%) are neutral. The growth is likely due to the retailer’s aggressive expansion strategy and may also be linked to the impact of inflation on consumers’ purchasing patterns.
