Everything for a dollar
Dollar Tree (NYSE: DLTR), a chain of stores across the U.S. whose reason for success was that all its products cost $1, had to give in to inflation and raise prices to $1.25 in 2022. The inflation monster has wiped out a tradition in a business that was more than 35 years old, but against all odds, the essence of the company is still more alive than ever today.
K.R. Perry was a simple man who dedicated his life to proving to everyone that quality can be obtained at a low cost. He was aware that when he went to the supermarket or to the outlet stores, he could sometimes come across products of great quality with excellent prices, and he wondered if he could find a way to group all these products together and sell them at an unbeatable price.
In a moment of euphoria, he decided to use his savings to start his first store selling all items for $1, which he considered a competitive advantage, and he discovered that people were able to buy products from his store simply by impulse and not by necessity. With such success, there was only one option left, to start expanding. In 1986, they decided to take the initial philosophy to the extreme, and that is where “Only $1.00” was born, but with the fear that at some point they could sell something at $1.01, they decided to rename the company to Dollar tree (NYSE: DLTR).
Their success was soon imitated by stores that tried to replicate their business model, but these poor imitations were bought out by the original creator of the concept, Dollar Tree (NYSE: DLTR). Today, it has almost no direct competition because none of them managed to copy its business model exactly. Take Best Buy (NYSE: BBY), for example, which is also an outlet store. Its goal is to have discounts on everything from souvenirs to technology, while Dollar Tree is only interested in being true to its initial philosophy of “offering everything for a dollar.”
But we are aware that $1 in 1986 is not worth the same as $1 today. How have they been able to maintain such low prices? China is the answer. They adopted an economic policy based on mass production, where their main strength was the huge population they had that they could allocate to work in huge factories. By 2023, they already had 13.5% of the market share in world exports, thanks to the low costs they have in terms of production, which allowed Dollar Tree (NYSE: DLTR) to fight inflation.
They were also able to lower product operating costs by acquiring from competitors and buying many more locations. Today, by applying this strategy, the company operates more than 15,000 stores in the U.S. and Canada. Despite all its efforts fighting to keep everything at $1, the Covid-19 pandemic delivered a final blow. The Federal Reserve printed a lot of money to keep the economy afloat, and this sent inflation soaring to 9% by 2022.
Despite the adversity in the current economic climate, their sales were up 8% for their latest report, where they reported that they have been able to add many more products to their stores by not having the price restriction of $1. Showing us that people already see the company as a true synonym for quality at a low price.