Dollar stores have more than an inflation problem

NEW YORK, October 1 (Reuters Breakingviews) – The US dollar store is the modern take on what was known during the Depression as the five-and-dime. But as with stores that sold pocket change merchandise back then, inflation and changing habits are now wreaking havoc in dollar stores.

After decades of selling most merchandise at $ 1 a piece, Dollar Tree (DLTR.O) on Wednesday announced plans to roll out more so-called Plus stores, which will also sell items at $ 3 and $ 5. The move follows skyrocketing shipping costs that have reduced the company’s ability to make money. Managing director Michael Witynski told the Wall Street Journal that higher salaries and supplier cost pressures were also causing problems.

In the past, when wallets were tight, buyers flocked to cheap sellers. During the recession from December 2007 to June 2009, Dollar Tree stock rose nearly 50% while the S&P 500 index fell by more than a third. Fortunately, inflation was also low during this period.

For now, especially because the U.S. government continues to help low-income people, they don’t need Witynski’s low prices as much. Along with rising costs, analysts expect the company’s sales to grow only 3% this year, according to data from Refinitiv.

In a sense, Dollar Tree and its rival Dollar General (DG.N) simply have a superficial problem with their names when it comes to long-term inflation. Even a five-and-ten-cent store in August 1932 was now selling items for $ 1 and $ 2, adjusted for consumer price increases since then. Short-term cost spikes only highlight this trend.

But crises also tend to speed up the adoption of new habits. Just as the dime that handed out free glassware was a fad that has transformed, Covid-19 has changed shopping habits from online toilet paper purchases to a rebalancing of restaurants and in-home dining. Dollar Tree is trying to offer more choice and attract more people. This means gradually encroaching on the territory of giant retailers like Walmart (WMT.N). For Witynski, this is a bigger challenge than the fact that each George Washington buys less than before.

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NEWS CONTEXT

– Dollar Tree announced on September 29 that it plans to add new prices above $ 1 to its Plus stores, selling products at $ 3 and $ 5, for example. The company is on track to have 500 such stores by the end of its fiscal year in January 2022, with a total of 5,000 stores by the end of fiscal 2024. At the end of July , the company operated nearly 16,000 stores.

– Last month, the company and rival Dollar General warned that soaring costs could squeeze profits.

Editing by Richard Beales and Amanda Gomez