Dollar Tree Is Cutting Some Prices Back to $1 -- but Don't Get Too Excited Yet

Much ado has been made about Dollar Tree's announcement that the chain will cut some prices back to $1. As nice as a return to $1 price tags sounds, the adjustment is not quite what it seems. Here, we lay out what a store executive recently said about prices, and why Dollar Tree policies matter to so many people. 

Dollar Tree started selling items for $1 in 1986

Dollar Tree first opened in 1986. At the time -- as the store name would suggest -- every item was priced at $1. In 2021, the discount retailer announced it would begin to raise some prices as part of a test. At that time, prices increased to $1.25 or $1.50. However, just as inflation has impacted the average household's checking account over the years, inflation has made it tough for Dollar Tree to maintain its profit margin.

Aside from generic brands and smaller packages of familiar products, it's not always easy for Dollar Tree to purchase products it can sell so cheaply. Which leads to the question of why the retailer would decide to roll back prices now. 

Big changes planned

Dollar Tree CEO Rick Dreiling told conference attendees in June, "It's pretty hard to have a banner like (Dollar Tree), and you have an item that everybody else has at $1, and you're at a buck and quarter."

Of the 8,000 or so items Dollar Tree sells, only 300 to 400 will be impacted by the price decrease. That's roughly 5% of Dollar Tree's inventory and unlikely to be enough to help consumers send their kids to school or save for retirement. 

What draws attention in upcoming months may not be the relatively few items Dollar Tree drops the price on, though. What may take people by surprise are the number of new products with higher-than-expected prices.

The retailer has already introduced the idea of higher price points by introducing $3 and $5 items and placing them in what it calls "Dollar Tree Plus" sections. According to the Dollar Tree website, Plus sections will continue to expand in coming years. 

With over 8,000 Dollar Tree stores in the U.S. and Canada, there are no plans to slow down. According to Jeff Davis, chief financial officer for Dollar Tree, there are plans underway for 650 new stores. 

Food deserts

"Food desert" is a term used to describe a community that lacks access to grocery stores and fresh foods. The Institute for Local Self-Reliance (ILSR) repeats the claim that stores like Dollar Tree specifically seek out such communities when scouting new locations. However, it doesn't believe that claim gets it just right. 

ILSR believes that chains like Dollar Tree choose locations where space is cheap and there is a significant concentration of low- and moderate-income residents. According to ILSR, "Dollar stores create food deserts," by leaving little market opportunity for grocery stores to take root or survive. 

Whether ILSR's assessment is correct or not, Dollar Tree's inclusion of $3 to $5 frozen and refrigerated items has allowed it to introduce new storage coolers to 3,500 stores. Coolers hold proteins, pizza, ice cream, and other food products popular with customers. 

It appears that as some prices drop, others will rise. Fortunately, Dollar Tree accepts manufacturer coupons in store, giving shoppers the opportunity to save money on groceries and other items they need.