Dollar Tree Increases Price Point Due to Prolonged Supply Chain Issues

When Dollar Tree last week said it would begin rolling out price points above $1 on more items, executives said it was meant to help the retailer introduce new products and meet more customer needs — which, in today’s reality, means the buck isn’t strong enough to combat the discount retailer’s supply and labor issues.

Some analysts have said the increased prices have broad significance beyond the discount retail industry, though, because they signal how intense the pressures of higher wages and unreliable supply lines from Asia are on the retail industry. Scott Mushkin, a founder and analyst at R5 Capital, told the New York Times that it may mean these issues are permanent.

Read more: Dollar Tree Adding Higher-Priced Products to Stores

Dollar Tree told analysts and investors last month that it expects freight costs to be up to $200 million more this year than it projected in May and lowered its estimate for full-year earnings per share to between $5.40 and $5.60.

Michael Witynski, president and CEO of Dollar Tree, noted on a conference call that Dollar Tree is more sensitive to freight costs than others in the industry because of its lower price points, which means freight costs are a higher percentage of gross merchandise margin and it’s not cost effective to utilize air shipments.

“As freight costs moderate in the future, we are confident when paired with our team’s significant efforts to enhance our supply chain, this will become a material tailwind contributing to a better product margins,” the CEO told analysts.

See: Dollar Tree Raises Estimated Freight Costs, Lowers Outlook

Still, Witynski said Dollar Tree is not counting on “material improvements” in 2022, especially in the first part of the year.

Going into the holiday shopping season, consumers are facing fewer choices and higher prices as retailers cope with key factory closures in Asia, partial port closures in China and a shortage of truck drivers across Europe, among other issues that add up to immense supply chain snarls. Last month, Nike said factory closures in Vietnam have caused at least 10 weeks of lost production time, meaning that holiday and spring merchandise will likely be delayed.

Related: Factory Closures Cause 10-Plus Weeks of Lost Production for Nike

Short on Warehouse Staff

Witynski also said last month that Dollar Tree is facing labor shortages in distribution centers and stores, which has forced the company to be more proactive in hiring through national events, sign-on bonuses, higher wages and paying tuition reimbursement, among other initiatives.

But Dollar Tree is also battling some of the biggest names in retail in an attempt to court workers, with Walmart expecting to hire 20,000 people for its supply chain operations and Target looking to hire 100,000 seasonal workers. Amazon is also trying to hire for 40,000 corporate and tech roles across the U.S. in addition to “tens of thousands” of hourly positions in Amazon’s Operations network.

Read more: Warehouse Worker Shortages Trigger Higher Pay, Use of Robot Assistants

As of July, the most recent data available from the U.S. Bureau of Labor Statistics, the retail industry had 1.1 million job openings, up from 781,000 at the same time last year. Transportation, warehousing and utilities companies had 490,000 jobs open, up from 296,000 in July 2020.

ShipBob CEO Dhruv Saxena told PYMNTS in a recent interview that he expects it to be very difficult for some companies to find enough workers to staff up their distribution and fulfillment centers as many large companies pull out all the stops to hire ahead of the peak season.

See: ShipBob CEO Says D2C Differentiation Must Extend to Fulfillment

“You have to be very creative in understanding what the labor market looks like and how do you attract these seasonal employees to choose you versus choosing the several different options,” Saxena said.