Dollar Tree Becomes Dollar (Fifty And Up!) Tree
Interesting piece at FEE by economist Peter Jacobsen on how inflation has finally taken a bite out of the Dollar Tree name and mission -- well, sort of on the mission:
Inflation has ruined one of my go-to examples for my macroeconomics students. Whenever I discuss inflation with my students, I test their understanding of economics by highlighting the puzzle of the Dollar Tree, an American retail chain that sells goods at discount prices. Between the year the Dollar Tree was founded (1985) and today, the price of goods and services have risen 2.63% on average every year.However, in spite of unpredictable swings in the economy and prices, one store has remained consistent throughout it all. Dollar Tree has long been known for being the last true "dollar store" which spans the whole US. For the last 35 years, when you walked into the Dollar Tree, you knew you wouldn't spend more than one dollar per product.
All of that is changing, however. After 35 years, the Dollar Tree has announced they'll begin to carry products with a price over one dollar. This invites two important questions: how was the store able to keep prices low for so long, and what is changing now?
Dollar Tree and the Art of Shrinkflation
To figure out why the Dollar Tree has decided to raise prices now, it's important to consider why and how they've gone without changing prices for so long. As any bargain shopper knows, the Dollar Tree isn't really the cheapest option out there. Buying large quantities in bulk is going to get you the best per unit money price every time. So if the Dollar Tree isn't offering the cheapest per unit price, what's the draw?
In a word: consistency.
Consumers like consistent prices and product availability. There's nothing more annoying than going to a store and seeing an empty shelf or a price tag double what you expected. People know what to expect at the Dollar Tree. Need a box of candy for a movie? That'll be one dollar please. Looking for a travel size shampoo? You know where to find it. Want a cheap toy for your kids? No sticker shock at the Dollar Tree.
This is why Dollar Tree is so resistant to price changes. In a world of credit cards, is $1.50 that much harder to swing than $1? Not for most. But that isn't the point. People appreciate the one-dollar ceiling at the Dollar Tree. It makes it easy to plan.
But how does the Dollar Tree do it? When there is inflation, the value of a dollar falls. How can the Dollar Tree offer the same products year after year in exchange for a less valuable dollar?
Let me answer that question with another question. Why don't you buy all your phone chargers at the Dollar Tree?
The Dollar Tree does carry chargers for phones, and they're certainly cheaper than the prices on Amazon or at Walmart. So why doesn't everyone get their phone charger from the Dollar Tree?
Most of you probably have an answer. Dollar Tree phone chargers are awful.
If you buy a phone charge from the Dollar Tree, it's probably because you had an emergency. You know that it will probably only work for a day before it breaks. And here is our answer. The Dollar Tree doesn't offer the same products every year for a less valuable dollar. They offer worse products for the less valuable dollar.
By spending additional resources, companies that make phone chargers can make them more resistant to wear and tear. If you have an iPhone, you may have at some point purchased a charger with a metal cover rather than the cheap plastic that breaks. These chargers are better, but they're more expensive to produce. The Dollar Tree can use this logic in reverse. By making their phone chargers lower quality every year, they're able to offset the fact that the one dollar used to purchase the charger is less valuable.
In the Ramona books, Mrs. Quimby buys Ramona's witch mask for Halloween at the Five and Dime.
NicoleK at October 23, 2021 11:28 PM
That's one way to handle inflation, another is product shrinkage, a packet of cookies would be 1 lb one year, 12 oz the next year, 8 oz the 2 years later.
Notice it when my local pizza joint keeps shuffling the sizes and names. a mediun pizza 2 years ago is now considered a large.
Another obsolescence. That phone charger it may be for a iPhone 6 when phones are on 11? now. Probably not a compatible charger, but those shopping in dollar store are probably back a few generations on their phones.
Joe J at October 24, 2021 1:58 AM
Another obsolescence. That phone charger it may be for a iPhone 6 when phones are on 11? now. Probably not a compatible charger, but those shopping in dollar store are probably back a few generations on their phones.
Joe J at October 24, 2021 1:58 AM
The connection is the same, but the cheap Chinese knock offs tend to charge slowly, get hot, and break quickly.
Personally I get enough Chinese crap off of Amazon without having to deliberately seek it out at Dollar Tree.
Isab at October 24, 2021 9:01 AM
After they broke the price point at the 99 Cents Only store I could see it was just a matter of time before it hit the luxury market too.
Baker at October 24, 2021 5:46 PM
Wait until you find the same stuff at Walmart for $0.75...
I R A Darth Aggie at October 24, 2021 6:09 PM
Another factor in the pizza issue is they want to be able to say a large pizza doesn't have too many calories/fat/carbs/undesirable nutritional stuff.
NicoleK at October 25, 2021 12:10 PM
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