Dollar Tree delivers more bad news on prices

There's a reason so many consumers have long been drawn to Dollar Tree. When you walk into a store like that, you pretty much know what you're going to get.You don't have to do much, or any, comparison shopping to see if there's a better deal on a spatula or kitchen towel elsewhere because chances are, there isn't.And if you're being honest with yourself, you're probably not getting the highest-quality items at Dollar Tree compared to what you might find on Amazon or a big-box store for six or seven times the same price point.But when you can bring home an item you need in a pinch for $1.25, and the next cheapest option is the $8.95 version you're seeing over at Target, it's kind of hard to argue with that — especially if you're on a tight budget.

But Dollar Tree's famous price point — which, incidentally, is now $1.25 — is something fans of the store shouldn't get too comfortable with.Dollar Tree keeps sending signs that it's looking to raise its prices. And that could deal cash-strapped shoppers a gigantic blow. Dollar Tree's multi-price strategy has not gone over well with lower-income customers.Shutterstock Dollar Tree has disappointing news on pricesDuring its last quarter, Dollar Tree reported a 0.3% decline in traffic year over year. And much of that stems from the fact that lower-income shoppers have been going there less frequently.As GlobalData Managing Director Neil Saunders told RetailDive, “There is currently a lot of talk about the constraints on lower income consumers, many of which are core customers of Dollar Tree. We see some of these stresses and strains in our data and the consequent impact of them visiting Dollar Tree a little less."Related: Costco members voice major shopping complaintNow it's also worth noting that same-store net sales for Dollar Tree increased by 4.2% in the quarter.However, that increase may have been driven not by a steady flow of customers, but by higher prices.Dollar Tree has been experimenting with higher-priced items for the past few years. Walk around the store, and you'll see plenty of items in the $5 to $7 range. That's a problem for low-income shoppers who are used to the predictability of being able to walk into a Dollar Tree and load up on ultra low-cost goods. In fact, Dollar Tree seems to be doubling down on its higher-priced goods. As CEO Mike Creedon said, "Our multi-price strategy drove strong momentum across our business in the third quarter and helped deliver an all-time record Halloween season."Dollar Tree is trying to expand its customer baseIt's very clear from Dollar Tree's recent earnings call and statements that the company is focused on appealing to a wider range of customers than in the past. As Creedon said, "Today’s Dollar Tree is a preferred destination for a wide range of shoppers – whether they rely on us for everyday essentials, appreciate a fast and easy trip, or enjoy the excitement of discovering something unexpected."Related: Home Depot issues dire warning on housing market, economyBut Creedon also made it clear that the store's multi-price strategy is here to stay. And that's a problem for consumers who can't swing a $5 or $7 item the same way they can manage a $1.25 purchase. It's also a potential problem for Dollar Tree. The company is taking a big risk, in that its attempt to draw in higher-income consumers could alienate its core customer base.More Retail:Costco CFO makes rare pricing promiseHome Depot faces growing consumer boycott calls ahead of holidaysTarget’s efforts to make amends with customers hit a snagAmazon lawsuit could be a warning to other employersIn 2021, when Dollar Tree first started introducing higher-priced products more broadly, Telsey Advisory Group analysts told Retail Dive that the move was “part of a broader strategy at Dollar Tree in the medium term to help offset rising costs, including raw materials, supply chain, and labor.” But it's clear that higher prices are not, in fact, a medium-term move for Dollar Tree. They seem to be becoming the new norm, which is bad news for the consumer segment the chain aims to reach.Related: Costco sees shift in member behavior