While many retailers struggled immensely during the pandemic, one breed of retailer shined: dollar stores. At a time when consumers had to be cash-savvy, dollar stores came to the rescue, allowing customers to load up on household essentials on the relative cheap.
At this point, the U.S. economy is in a much stronger place than it was in 2020 and the first half of 2021. But the flip side of that is that inflation has been rampant since last summer, putting a strain on consumers' wallets.
Retailers are feeling the crunch, too. Between general inflation and supply-chain bottlenecks, it's been costing retailers more to procure inventory. And some chains now have no choice but to pass those higher costs on to their customers.
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One such chain is Dollar Tree (DLTR 1.03%). After upholding its $1 price point for 35 years, Dollar Tree is now putting an end to $1 pricing, raising its main price point to $1.25.
Not shockingly, it's a move that isn't sitting well with consumers so far. And that could have disastrous consequences, not just for Dollar Tree but also for real estate investors.
Consumer pushback has already begun
At a time when just about everything from groceries to gas to apparel is costing more, the last thing budget-conscious consumers can stomach is a discount retailer hiking prices too. And so far, consumers are already pushing back.
In December, Dollar Tree added $1.25 prices to more than 2,000 of its 8,700 stores. Meanwhile, Coresight Research noted a 6.2% drop from Dec. 27 to Jan. 3 in the number of customers who purchased nonfood items at Dollar Tree compared to the prior two weeks. Other chains did not see similar drops.
As such, the fear is that as Dollar Tree implements price hikes at more of its stores, its customer base will shrink. Not only might consumers head to competing dollar stores (where most products actually cost $1), but they might also choose to take their business to big-box stores like Walmart, which are known for their competitive price points.
Real estate investors could get hurt, too
During the pandemic, numerous retailers closed stores and left shopping center operators in the lurch with vacancies to fill. Dollar stores, meanwhile, have been a shopping center mainstay for years, and based on their success during the pandemic, they're in a strong position to continue to branch out.
But if Dollar Tree sees a strong decline in revenue due to customer pushback, all of that might change. Not only might the chain stop thinking about expansion, but it may be forced to shutter stores, adding to shopping centers' vacancy crisis. As such, real estate investors with retail REITs (real estate investment trusts) in their portfolios could feel the impact.
While it's premature to predict the demise of Dollar Tree based on its new price point, it's clear that consumers aren't happy about it. Whether that has a minimal impact or an extreme one is yet to be determined as Dollar Tree rolls out its new pricing model across more stores.
