A proposal by Donald Trump to impose tariffs on products that come to the U.S. from China, Canada and Mexico could have an impact on products and their prices found in American dollar stores.
What Happened: For years, dollar stores have offered items across their aisles that cost $1 or less in many cases. That has changed over the years with dollar stores owned by Dollar Tree Inc (NASDAQ:DLTR) raising prices to $1.25 to offset higher inflation.
Trump's tariff plans could mean further price hikes in Dollar Tree stores or changes to the product assortment, according to company officials.
"While the situation remains fluid and the exact nature, scope, and eventual timing of any new tariffs is not yet clear, we are prepared to act on multiple fronts," Dollar Tree Chief Operating Officer and Interim CEO Mike Creedon said on Dollar Tree's recent conference call.
Creedon said Dollar Tree was able to negotiate lower costs with suppliers back in 2018 and 2019 when last dealing with tariff concerns. The company also changed product specs and pack sizes along with stopping the sale of several items altogether.
"All three of those options are still at our disposal."
The Dollar Tree interim CEO also said the company is working on supply sources from alternate countries.
"We believe there is a wide range of potential actions that we can take to help mitigate additional tariffs if and when they materialize."
Creedon said the company's multi-price strategy, which includes items past the $1 and $1.25 price points, could also be a solution for the tariff plans when asked to share what the downside case to the company's earnings is due to tariffs.
"Multi-price gives us the ability to flex where we need to if a certain product becomes something that we've got to move in the market to be competitive."
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Why It's Important: Plans call for 25% tariffs on products imported from Mexico and Canada and 10% tariffs on products imported from China.
Retailers who sell consumer products could see higher costs for items they sell in the store. Companies will be tasked with deciding how to maintain their pricing power from suppliers, keeping prices the same and hurting their own profit margins or passing the higher costs onto consumers.
Based on the commentary from Dollar Tree, the company plans on a combination of both trying to lower costs from suppliers and raising prices for consumers.
Similar to fighting off inflation, Dollar Tree and other retailers could also look to change product size and assortment to keep prices the same for consumers or eliminate some items that aren't as profitable and perhaps also not as in demand from consumers.
Dollar Tree reported third-quarter revenue and earnings per share that beat analyst estimates along with a better outlook for the full fiscal year. The company received several price target hikes from analysts after the report.
DLTR Price Action: Dollar Tree stock closed down 0.38% to $71.60 on Monday versus a 52-week trading range of $60.49 to $151.22. Dollar Tree stock is down 50% year-to-date in 2024.
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Photo: Jonathan Weiss via Shutterstock
