One investor thinks Dollar Tree should raise their prices.
For those wanting to continue getting as much bang as possible out of the not-so-mighty buck these days, the Dollar Tree has been a godsend. For years, customers have been grateful for being able to get products that can be covered by a George Washington note, but few question how the bargain chain could manage to keep its inventory that affordable.
Well, one investor is not only providing answers, but he's also asking the Dollar Tree to start hiking its sticker prices, according to WRDR. Jeffrey Smith, the CEO at Starboard Value Hedge Fund, which has a 1.7 percent investment stake in the retailer, wants to help revise the Dollar Store's business model for the sake of profitability.
He might have a case, arguing that the merchandise on Dollar Tree shelves has lost value over the years. Taking into account inflation, which as a rule of thumb can cause the value of a product to double roughly every quarter-century, That said, Smith believes Dollar Tree is a boon to its customers for its service and discounts, which has created a huge loyalty base.
“However, the value that Dollar Tree has offered its customers has deteriorated because of the need to fit everything into a $1.00 price point," says Smith. "Products today are smaller or of lower quality than they were five, ten, and certainly thirty years ago.”
Smith argues that a product that sold for a dollar back in 1986 would actually cost customers $2.30 these days. But here's the rub. The costs incurred by The Dollar Tree to stay in business, from employee wages to overhead to inventory purchases have gone up over time. What that means is that the company would have to raise its prices to at least be operational in an economy loaded with uncertainty.
Since that announcement, the owners of Dollar Tree has taken in that advice, but don't appear willing to change its pricing strategy. The company is reportedly sticking to its guns even though the value of Dollar Tree stock has dropped at least 15 percent throughout 2018. It's a plummet that's twice as large as the overall retail market.
Dollar Tree responded politely to the suggestions but it appears likely to push back on any proposed changes. Other suggestions by Smith include Dollar Tree dropping Dollar Family, a competitor it bought out in 2015. That acquisition has since tied in closely with Dollar Tree losing ground in the Standard and Poors 500 Index as well as other market indicators.
“Dollar Tree is focused on ensuring our brands are the premier shopping destination for value and convenience, taking the right actions to solidify our leadership position in value retail,” declared the chain.