For more than 30 years, Dollar Tree has made a singular promise to its customers: “Everything’s $1.”
The Virginia-based retailer, which relies heavily on cheaply made goods from China, said last week that it had begun testing higher prices at some of its stores. Soon, more than 100 Dollar Tree stores across the country will sell items that cost up to $5.
That price increase, spurred by activist investors, comes as the company braces for millions of dollars in new tariff-related expenses that analysts say will disproportionately affect the chain and its lower-income shoppers. The dollar store industry is dominated by two companies: Dollar General and Dollar Tree, which also owns Family Dollar.
Dollar Tree “is the ‘poster child’ for tariff impact,” Judah Frommer, an analyst for Credit Suisse, wrote in a recent note to clients. “China is the source of a substantial majority of the company’s imports.”
The company, he added, imports about 40 percent of its merchandise directly from China. It also sells products from two dozen other countries, including Mexico, leaving it vulnerable to additional tariffs being threatened by President Donald Trump. The president took to Twitter late Thursday to say Mexican imports would be subject to a 5 percent tax starting June 10.
On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,..— Donald J. Trump (@realDonaldTrump) May 30, 2019
“At the end of the day, these tariffs are a tax on U.S. consumers, and they disproportionately affect the dollar store consumer who is living paycheck to paycheck,” said Anthony Chukumba, an analyst for Loop Capital Markets in Chicago.
Retailers across the country have warned that prices could rise by as much as 20% this year as they face higher costs on items such as shampoo, suitcases and salmon.
American families will pay almost $800 more a year on items including cribs, shampoo and toilet paper as a result of the Trump administration’s tariffs on Chinese imports, according to a report by the Trade Partnership, a Washington-based research and consulting firm. That number is likely to rise even more if similar taxes are levied on Mexican imports.
Dollar Tree’s largest competitor, Dollar General, said last week that it will likely have to mark up prices to keep up with tariffs.
“We will do everything we can to minimize the impact of tariffs on our customers,” John Garratt, Dollar General’s chief financial officer, said on an earnings call Thursday. “But even with these efforts, we believe our shoppers will be facing higher prices as 2019 progresses.”
The majority of Dollar General’s customers have annual household incomes of less than $49,900, and one-third live in households that earn less than $25,000 a year.
decision to sell items priced $2 to $5 was made before the newest tariffs on Chinese goods went into effect , according to Randy Guiler, the company’s vice president of investor relations. On Thursday, the company also lowered its profit expectations for the year because of a $15 million increase in import freight costs.