Dollar Tree Navigates Retail Transformation With Multi-Price Strategy

Family Dollar parent company Dollar Tree, which operates more than 16,000 stores across the U.S. and Canada, is navigating a significant transformation under Chairman and CEO Rick Dreiling.

Despite facing a challenging macroeconomic environment, the company is making strategic moves that could redefine its market position and appeal to a broader customer base. One of the most noteworthy initiatives is the rollout of Dollar Tree’s multi-price format.

This new strategy, which has been implemented in 1,600 stores, aims to diversify the product range with items priced between $1.50 and $7. The goal is not to raise prices on existing products, but to introduce new items at higher price points, in a bid to enhance the shopping experience and attract more customers.

In a press release accompanying the company’s second-quarter results released Wednesday (Sept. 4), Dreiling highlighted the early success of this initiative, noting that stores with the new format have experienced a substantial sales lift.

“We are encouraged by the continuous progress we are making in the transformation underway at Dollar Tree and Family Dollar,” he said. “This transformation is seen as a key component of the company’s strategy to adjust to changing consumer preferences and economic conditions. Customers are responding favorably to initiatives like our expanded multi-price offering and we are already seeing a meaningful sales lift at the 1,600 Dollar Tree stores that have been converted to our newest in-line multi-price format. With thousands of stores left to convert, we believe we are still in the very early innings of this rollout, with many years of runway left ahead of us.”

Consolidated second-quarter net sales inched up 0.7%, to $7.37 billion. Same-store sales grew slightly (1.3%) at Dollar Tree due to higher traffic, and decreased (0.1%) at Family Dollar despite increased traffic, reflecting a drop in average ticket.

Dollar Tree’s commitment to expanding its multi-price assortment includes plans to introduce more than 300 new items by the end of the year.

The expanded assortment is expected to boost store performance over time, with early results showing positive customer engagement and sales growth.

Dollar Tree Chief Operatiing Officer Michael Creedon acknowledged the challenges of this transformation but expressed confidence in its potential. “Transformations are rarely easy or linear,” Creedon said during the earnings call. “That is especially true for a company as large as ours. But we believe deeply in the positive impact we’re having in the areas we control.”

During the fourth quarter of fiscal 2023, company officials launched a comprehensive store portfolio optimization review, which involved identifying stores for closure, relocation or re-bannering based on an evaluation of current market conditions and individual store performance. They identified approximately 970 underperforming Family Dollar stores, including some 600 stores to be closed in the first half of fiscal 2024, and around 370 stores to be closed at the end of each store’s current lease term.

As of Aug. 3, 2024, 655 stores identified under the portfolio optimization review closed, with 45 more scheduled to close during the remainder of fiscal 2024. The company adjusted its full-year fiscal 2024 consolidated net sales outlook range to $30.6 billion to $30.9 billion. It expects to deliver comparable store net sales growth in the low single digits for the enterprise and both the Dollar Tree and Family Dollar segments.

“Clearly, we are not pleased with our second-quarter results or having to revise our full-year outlook,” Creedon said. “But this updated outlook reflects how the challenging macro environment continues to pressure our customers. We are strong believers in the inherent strength of Dollar Tree’s differentiated business model and its long-term strategy of multi-price expansion and store growth acceleration. Today, we need to be sensitive and responsive to the needs of our customers and meet them where they are and how they are living.”

Offering perspective on the multi-price strategy, Creedon said, “To give you a sense of how these stores are performing, costs for the 1,600 stores we’ve converted were up 4.6% in the second quarter versus less than 0.5% at our other formats.” In addition, “Our Q1 conversions who had the benefit of the new multi-price format and assortment for all of Q2 did a 5.1% comp. Importantly, these in-line stores showed strength across the assortment with a 6.7% consumables comp and a 2.6% discretionary comp. Considering the vast majority of our new discretionary multi-price items won’t be in these stores until later this year, we are very pleased with these early results.”