(CNN Business) – Dollar Tree will soon be a US $ 1.25 Tree.
The company, one of the last remaining real dollar stores in the United States, said Tuesday it will raise prices from $ 1 to $ 1.25 on most of its products. for the first quarter of 2022. The change is a sign of the pressures low-cost retailers face to hold prices during a period of rising inflation.
Dollar Tree said in a quarterly earnings release Tuesday that its decision to raise prices to $ 1.25 permanently, however, “was not a reaction to short-term or transitory market conditions.”
Selling things strictly for $ 1 hampered Dollar Tree, the company said, forcing it to stop selling some “customer favorites.” The price increase will give Dollar Tree more flexibility to reintroduce those items, expand its selection, and bring new products and sizes to its stores.
Dollar Tree also said that higher prices will help the company increase its profit margins by “mitigating historically high increases in freight costs,” including transportation and distribution costs, as well as salary increases.
“This is the right time to move away from the $ 1 price constraints,” CEO Michael Witynski said in a statement.
The end of dollar stores: Dollar Tree was the last
Dollar Tree primarily sells seasonal products, toys, stationery, home decor, kitchenware, and party supplies.
It caters to middle-income suburban buyers, unlike Dollar General, its more rural rival. Family Dollar, owned by Dollar Tree, primarily targets low-income buyers in cities.
Dollar Tree has sold products for $ 1 for 35 years and was the last of the major chains of dollar store to really be a dollar store. (The company was called “Only $ 1.00” in the late 20th century, before changing its name to Dollar Tree in 1993).
The company had begun to stop offering products for just $ 1 in recent years, in part in response to pressure on Wall Street to raise prices. Dollar Tree has lagged behind Dollar General and other discount chains.
In 2019, an activist investor took a stake in the company and pressured the chain to raise prices. The group ended their fight after Dollar Tree announced that it planned to test different prices.
In September, Dollar Tree said it planned to start selling $ 1.25 and $ 1.50 items in some stores for the first time. It also said it would add $ 3 and $ 5 items to more stores, expanding on an earlier strategy to offer these prices in select locations.
Since that announcement, a different activist investor has acquired a stake in Dollar Tree and has turned to a former CEO of Dollar General to drive change at the company.
Although the company said its decision to raise prices permanently was not a reaction to inflation in the short term, an analyst consulted is not convinced.
“The timing of the release, along with [el] committed investor, Mantle Ridge, clearly suggests otherwise, “Kelly Bania, an analyst at BMO Capital Markets, said in a note to clients Tuesday.