What's In A Name? Dollar Store Model Shifting For These 2 Retailers

For years, discount retailers have been a way for customers to know they won’t pay over a certain price. Dating back to 1908 were five-and-dime-cent stores that sold items for less than 10 cents. Fast forward and the trend of dollar stores selling items $1 or less started popping up.

Here is a look at two famous discount stores that are shifting their sales model above their famous price points.

Dollar Tree: Dollar store Dollar Tree, Inc. DLTR has been known for years as having everything in the store cost $1.

Dollar Tree announced it will ramp up a new effort to sell higher-priced items, which it has been testing across several brands and new store concepts.

Dollar Tree Plus is the company’s new store format that has items among the $1, $3 and $5 price points. The company also has Combo Stores combining the Dollar Tree and Family Dollar brands under one roof.

Dollar Tree said strong reaction from customers will lead it to test items above $1 at select legacy Dollar Tree stores.

“We believe testing additional price points above $1 for Dollar Tree product will enable us over time to expand our assortments, introduce new products and meet more of our customers’ everyday needs,” Dollar Tree CEO Michael Witynski said.

The CEO said the company remains committed to its core offering of $1 items but wants to see it push on “broader product assortment” based on customer feedback.

The company plans on having 500 Dollar Tree Plus stores by the end of the year and more than 1,500 by the end of fiscal 2022. The company has 105 Combo Stores with plans to have over 500 by the end of 2022.

Dollar Tree Plus stores have 6% higher sales and a higher gross profit compared to the legacy stores, according to the company’s second-quarter earnings report.

“Our shoppers love the Combo Stores. We are seeing materially increased sales and margin dollars, better returns and improved paybacks with this format," Witynski said.

Combo Stores are seeing 23% higher sales than traditional Family Dollar stores and a 31% increase in gross margin dollars, according to the company.

Shares of Dollar Tree are up 16.16% Wednesday at $100.17. The company’s shares are down 5% over the last year and up only 9% over the last five years. 

Related Link: Why Dollar Tree Shares Are Trading Higher Today 

Five Below: True to its name of Five Below Inc FIVE, the retailer offers items priced at $5 and under. After 17 years of this pricing model, Five Below began testing higher-priced items in 2019.

“With most items priced between $1 and $5 and some extreme value items priced beyond $5, Five Below makes it easy to say YES!” the company’s website reads.

The company reported second-quarter sales of $646.6 million, a year-over-year increase of 51.7%.

“We are confident that our Wow assortment, the flexibility of our unique model with eight worlds and our new Five Beyond offering continue to serve us well as we drive sustainable long-term growth and realize our 2,500-plus store potential in the U.S.” Five Below CEO Joel Anderson said.

Five Below faced some criticism across social media when it made the introduction of higher-priced items. The company offered a post of “we owe you an explanation” and has seen positive reactions over the years of the additional items offered.

“We also discovered a handful of $6 - $10 toys and games we thought you wouldn’t want to miss,” the company said at the time. Five Below has been able to expand its technology offerings with the new price point, which could bring new customers into the stores.

The company said at the time it had no plans to change its name.

Five Below had 1,121 stores in 39 states at the end of the second quarter.

Shares of Five Below are down 0.75% Wednesday at $185.58. The company's shares are up 46% in the last year and up 346% over the last five years.

Image by ClassicallyPrinted from Pixabay