Dollar Tree Defends Raising Prices to $1.25 Due to Supply Chain Problems

Discount retailer Dollar Tree has cited increased freight and operating costs as driving its decision to add a quarter onto the price of most items.

The bargain chain said the increase in prices was "not a reaction to short-term or transitory market conditions." However, it comes as figures released this month showed that annual inflation in the U.S., at 6.2 percent, was its highest in three decades.

However, in reporting its Q3 results for 2021 and announcing the price rise, the company said "freight and supply chain disruptions continue to be the company's biggest challenge in the near term."

Dollar Tree said it had tested the higher prices at over 100 of its stores and found that there had been "broad consumer acceptance," with 91 percent of customers saying they would continue to shop there despite the price change.

The company will roll out the higher prices at a further 2,000 stores in December and across its outlets nationwide by the end of the first quarter 2022.

The statement said that the price rise will enable the company "to expand its offerings, introduce new products and sizes."

Its statement also said it would allow Dollar Tree to reintroduce products "that were previously discontinued due to the constraints of the $1 price point." There are over 16,000 Dollar Tree outlets across the U.S. and Canada.

The company had a robust Q3 2021 with year on year revenues up 3.9 percent from $6.18 billion to $6.42 billion.

It said that the higher price tag on most products would allow it "to return to its historical gross margin range by mitigating historically-high merchandise cost increases." These consisted of higher freight and distribution costs, and more expensive operating costs, such as wage increases.

Dollar Tree president and CEO Michael Witynski said in a statement that the higher prices will give the company "greater flexibility to manage the overall business, especially in a volatile, inflationary environment."

After the company's announcement on Tuesday, Dollar Tree shares went up by five percent.

Supply chain issues and higher labor costs have hit other retail giants such as Walmart, although an increase in sales growth has managed to largely offset this.

However, dollar stores have been particularly impacted by a slowdown in sales and smaller profits during the pandemic, as well as pressure to increase wages, supply chain problems and cities and towns rejecting their business model.

Analysts say the increase in price is significant for the dollar store industry as it accounts for higher wages and an unreliable supply line from Asia.

"It means these issues may be permanent," Scott Mushkin, an analyst with R5 Capital, told The New York Times.

Newsweek has contacted Dollar Tree for comment.

A Dollar Tree store
A Dollar Tree store in Los Angeles, California pictured on November 23, 2021. The company announced it will permanently increase prices from $1.00 to $1.25 on most items. Mario Tama/Getty