Will Inflation Force Dollar Stores to Raise Prices? Analysts Seem to Think So

Loveland, Colorado, USA - October 27, 2013: The Dollar Tree location in Loveland.
RiverNorthPhotography / Getty Images

Analyst firm Piper Sandler believes Dollar Tree discount stores may not be able to remain profitable amidst inflation unless the company raises prices. Dollar Tree’s business model is to sell all items for $1. But inflation, coupled with wage increases, has forced the discount retailer to expand its pricing structure with the introduction of Dollar Tree Plus! — a collection of items available at $3 and $5.

See: Consumer Restraint Could Be Saving the U.S. Economy From InflationFind: Inflation’s Ups and Downs: How It Impacts Your Wallet

The Krazy Coupon Lady reported earlier this month that the company has rolled out the Dollar Tree Plus! concept in approximately 500 of their 15,000 stores. Some of the products available at higher prices include electronics, clothing, plants, toys, seasonal goods and more. Customers can still use coupons for additional savings.

Will the changes be enough to keep the retailer growing and profitable? Piper Sandler voiced doubts, dropping the price target from $117 to $102 for Dollar Tree stock. The stock dipped under $100 following the news.

“Low-income wage growth and total wage growth is at the highest levels since the Dollar Tree IPO in 1995,” analyst Peter Keith wrote. “We estimate a $1/hour pay increase to store associates.”

See: Costco, Amazon and 16 Other Companies That Raised Their Minimum Wage to $15 (or More)Find: Employees Would Rather Work from Home Than Get a Raise

He noted a wage hike would represent a $215 million headwind for the company, and that’s before accounting for the rising prices of consumer goods.

In general, consumers can often find great deals on everyday household items, cosmetics, school supplies and more.  However, some of the brand-name items such as cleaning supplies and food may be specially packaged in smaller sizes, which means you may not be getting a bargain. In the face of inflation, though, when other retail stores may be passing price increases onto consumers, shoppers may find even more deals at dollar stores.

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