Dollar Tree Cracks $1 Price Point as Inflation Bites

The Dollar Tree store in Chantilly, Va., on Jan. 2, 2015. Paul J. Richards/AFP/Getty Images

Dollar Tree, known for selling $1 items, will start testing higher price points in what it’s calling a “multi-price evolution” driven by a combination of customer demand and inflation.

The company, which operates over 15,000 stores across the United States and Canada, said in a Sept. 28 release that customers have welcomed the rollout of Dollar Tree Plus and Combo store formats, which offer items at higher price points.

“For decades, our customers have enjoyed the ‘thrill-of-the-hunt’ for value at one dollar—and we remain committed to that core proposition—but many are telling us that they also want a broader product assortment when they come to shop,” the company’s chief executive, Michael Witynski, said in a statement.

While the company’s press release made no mention of inflation, Witynski told The Wall Street Journal in an interview that higher costs— including materials, wages, shipping—were also a factor.

Investors welcomed the announcement, with Dollar Tree Inc. shares shooting up around 15 percent on the news.

“Our brand promise is that customers get great value for what they spend at Dollar Tree,“ Witynski said. ”We will continue to be fiercely protective of that promise, regardless of the price point, whether it is $1.00, $1.25, $1.50.”

With the announcement, Dollar Tree has become the latest retailer to look at passing on at least some of the rising costs to customers.

Costco’s chief executive recently estimated the average price inflation of the goods the retailer is selling to fall in the 3.5–4.5 percent range, though the high cost of plastics and resins led some items—like trash bags and plastic cups—to go up by as much as 11 percent.

Surging prices have been a headline theme amid the economic recovery, rising faster than wages and eroding the purchasing power of Americans.

Core personal consumption expenditures (PCE) inflation, which excludes the volatile categories of food and fuel and is the Fed’s preferred gauge for price growth, has risen sharply in recent months, well above the central bank’s 2 percent target.

In April of this year, core PCE was 3.1 percent, rising to 3.5 percent by May and 3.6 percent in June and July, the latest months of available data from the Commerce Department.

While Fed officials have expressed concern about price pressures, they predict that the high rate of inflation is a transitory phenomenon. Still, they acknowledge there’s a risk that price pressures will be stickier than previously anticipated.

New York Federal Reserve Bank President John Williams said Monday that consumer expectations for what the rate of inflation will be several years down the road remain “well-anchored” around the Fed’s 2 percent objective, though he said there are upside risks and a “great deal of uncertainty” around the inflationary outlook.