Extreme value retailer Dollar Tree recently announced it will be changing its $1 business model for the first time in 35 years. Items will be sold at a base of $1.25 or higher, with some items priced at $3 or $5. This more closely resembles the pricing models of competitor retailer Five Below.
The change arrives at a time of globally rising prices, though the company says it has been a long time coming and is not the direct result of current inflation. Will the price hike impact Dollar Tree’s growing popularity?
Recent survey results from CivicScience show that favorability for Dollar Tree stores has skyrocketed over the past year, climbing 13 percentage points from Q1. When asked whether or not they enjoy shopping at Dollar Tree, nearly 50% of U.S. adults surveyed were favorable: 18% said they “love” and 31% “like” shopping there, while under 40% were neutral. This growth is likely due in part to the brand’s aggressive expansion across the U.S., but could also reflect the impact of inflation leading consumers to seek out more cost-effective purchases.
Looking at a week-over-week change throughout the past month shows favorability has not fallen with the announcement of the price increases. Additionally, data suggest that most Dollar Tree shoppers will probably continue shopping with the retailer. A separate survey finds that the majority (60%) of respondents shop with some degree of regularity at Dollar Tree stores (n=2,527). Rebasing results just among Dollar Tree shoppers shows most plan to continue to shop at the stores even after the price hikes take effect in 2022. Twenty-two percent of current shoppers said they would be unlikely to continue shopping there.
Interestingly, loss may be felt the strongest among wealthier customers. Those who earn $100K or more per year are the least likely to continue shopping at Dollar Tree with the new pricing strategy, while lower-income earners are the most likely to remain loyal.
Survey results reveal that inflation is likely a motivating driver for Dollar Tree shoppers – 89% of those favorable to Dollar Tree are concerned about inflation, compared with just 76% of those unfavorable to the brand.
While Dollar Tree serves up a variety of low-cost goods, including some food and grocery items, certain categories appear to attract shoppers more than others. These include holiday and party supplies and household items, such as cleaning products. Just under one-quarter of respondents visit the stores for food and groceries.
Finally, how does Dollar Tree stack up against other discount retailers? Survey findings show that Dollar Tree favorability outranks that of both Family Dollar (a brand within the Dollar Tree family) and Dollar General. Although these retailers have different business models with higher-priced goods, they still offer many similar products, including household, health and beauty, and grocery items. Dollar Tree remains the most popular and well-liked of the three.
While the scheduled price increases may drive some customers away, the findings suggest Dollar Tree is poised to maintain an overall strong position in the inflationary economy, particularly with middle- and lower-income earners. We’ll be watching these trends as they unfold in the year ahead.