Trump’s Tariffs and Target Are Killing Dollar Tree

Dollar stores are getting hit hard by tariffs and competition.

Dollar stores used to be the go-to resource for low-income shoppers trying to make their budget stretch a little further. They still are, but their appeal spread to thrifty millennials wanting to spend less on basic items to save more for larger purchases and experiences like travel. But the one-two punch of President Donald Trump’s trade tariffs and increasing competition from the likes of Target and Walmart threaten the low-cost market dominance of dollar stores.

Click to see the 12 states getting hit hardest by Trump’s tariffs.

Trump’s China Trade Tariffs Will Hit Dollar Stores

President Trump enacted a 10 percent tariff on $200 billion worth of Chinese goods in Sept. 2018. This was the latest in a series of tariffs on imports, but the first one that meant prices on consumer goods will increase, in addition to impacting industrial product prices.

Dollar Tree, which owns Dollar Tree and Family Dollar stores, and other discount retailers like Dollar General heavily stock Chinese-made goods. About 42 percent of Dollar Tree products are imported, mostly from China, according to Telsey Advisory Group, a research and consulting firm. Family Dollar imports about 23 percent of its products. About 10 percent of the merchandise at Dollar Tree and Family Dollar stores will be hit by the tariffs, according to chief executive Gary Philbin’s testimony at a hearing before the U.S. trade representatives.

Related: ‘All-American’ Brands Whose Products Are Actually Made Overseas

The 10 percent tariffs that have already been enacted are scheduled to rise to 25 percent on Jan. 1, 2019. Even worse for the dollar stores, these tariffs might not be the last. Trump has threatened another round of tariffs if China retaliates against these, which it has shown every indication of doing. Those tariffs would mean virtually anything imported from China could be taxed.

See: 10 Ways the Dollar Store Could Actually Be Costing You More

Target Launches Cheaper Product Line to Increase Competition

This week, Target introduced a line of lower-cost products called Smartly. The line includes necessities such as all-purpose cleaner, body lotion, hand soap, dishwasher powder, toothbrushes, paper plates, razor blades and bath tissue — with most selling for less than $2. They come packaged as single items and in small multipacks — like four rolls of toilet paper — so you don’t have to buy a year’s worth to save like you might at a warehouse store.

Millennial shoppers like Target, and they like one-stop shopping, according to the Love List Brand Affinity Index put out by Conde Nast and Goldman Sachs. They already choose Target and Walmart for groceries and other household items. If they can find dollar store prices at Target, they might cross dollar stores off their list entirely.

Click to find out how Kroger and Walgreens teamed up against Amazon and Walmart to offer one-stop shopping.

More on Businesses and Making Money