Kennedy: Dollar store model ready to take on inflation pressure

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Are dollar stores an endangered species?

You might think so, judging from business news headlines suggesting these modern-day five-and-dimes are caught in a vice of having to pay more at wholesale and then choose whether and when to pass on those costs at retail.

Executives of the publicly traded Big 3 — Dollar Tree, Family Dollar and Dollar General — talked about the inflationary pressures they’re feeling in conference calls in late August while reporting fiscal second-quarter results.

Among them, only Dollar Tree is a true “dollar” store, with a fixed $1 price point, while Family Dollar and Dollar General keep prices under $10.

All three have been building stores at a rapid clip, spurred on by an influx of consumers from the upheavals of both the Great Recession and the coronavirus pandemic. Dollar Tree Inc., which owns the Dollar Tree and Family Dollar chains, has more than 15,000 stores in the U.S. and Canada; Dollar General Corp. operates more than 17,000 stores of the same name in 46 states.

Right now, though, freight costs are weighing the companies down.

The expense has “reached unprecedented levels as a result of increased demand, limited capacity and shipping delays,” CEO Michael Witynski told analysts on Dollar Tree’s second-quarter call, indicating that spot rates on ocean freight from China were up more than 400% since 2019.

The company’s projected cost for freight this year is as much as $200 million more than what it expected just three months ago, he said. As a Top 10 importer among large retailers, Dollar Tree brings in nearly 90,000 40-foot containers annually, so freight has “an outsized impact,” Witynski said.

Answering an analyst query, he said shipping by air would be “cost-prohibitive” when trying to source products to sell at $1.

Instead, Dollar Tree is trying a new tack by reserving space on charter vessels for the first time. It’s also looking to source more goods within U.S. borders.

At store-level, Dollar Tree has started to add a section of products dubbed ‘Plus!’ that sell for $3 to $5 — discretionary items such as seasonal merchandise that consumers would still see as a bargain.

Witynski said the new concept is lifting sales by 6% at stores where it has been introduced.

“I can’t reiterate enough how confident I am in the Dollar Tree format … what our merchants are able to do with a great value and the dollar price point,” he told analysts on the call.

When other retailers respond to higher costs by raising prices, “[t]hat dollar price point is going to look good,” Witynski said, “and I’m confident going into the back half [of the fiscal year], with our seasons, with our product that we have and what our merchants are delivering, we’re going to continue to be able to drive this organization forward.”

Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at [email protected]

Categories: Business, News, Opinion

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