Dollar Tree finds itself in a bind over tariffs on China
Store where everything costs $1 can’t hike prices
Few stores and their shoppers are as affected by the Trump administration’s escalating trade fight with China as Dollar Tree and its base of low- and middle-income customers. Late last month, President Donald Trump slapped a 10 percent tariff on $200 billion worth of Chinese imports. Unlike previous rounds of tariffs on Chinese products, which largely taxed industrial goods, the new duty touches everyday consumer items. That’s the sweet spot for the Chesapeake, Virginia-based Dollar Tree, which owns 15,000 Dollar Tree and Family Dollar discount variety stores across the U.S. and may soon need to pull items off shelves or take other steps to offset the higher costs. The tariff also might hit communities if the company pulls back on store openings and hiring. Many of its inexpensive products can be made only in China, company executives said. Dollar Tree imports about 42 percent of its products, while Family Dollar imports about 23 percent, according to estimates from the Telsey Advisory Group, a research and consulting firm. Most of the shipments are from China, the firm said. The tariff will hit about 10 percent of Dollar Tree’s merchandise, or several thousand items, including household, health and beauty products, food, hardware, and electronics, the company’s chief executive, Gary Philbin, said at a hearing before the U.S. trade representative in late August. The higher tariff is forcing Dollar Tree to pay more to import the goods. It can absorb the higher costs, pass them on to customers or find a way to offset them. While most discount store shoppers could feel the pinch, customers of the so-called dollar stores are especially budget-constrained and would be hurt by what is essentially a new tax on their purchases. And higher costs lie ahead: The new tariff is set to rise to 25 percent Jan. 1. Philbin said in a letter to the U.S. trade representative last month that his company simply can’t raise prices at Dollar Tree, which sells everything for $1. At Family Dollar, the company has a little more wiggle room, with about 40 percent of items priced at $1 and the vast majority costing $3 or less. If the U.S.-China standoff isn’t resolved soon, customers are likely to see slightly less merchandise in stores, smaller packages at the same price for certain items and perhaps some higher prices at Family Dollar, Philbin said. Dollar Tree also may pull back investment and hiring in communities if its profits fall, he said. More than 60 percent of Dollar Tree’s shoppers – at Dollar Tree and Family Dollar chains – have less than $40,000 in annual household income, Philbin wrote in his letter to U.S. Trade Representative Robert Lighthizer. Half of that group earns less than $20,000 a year. “They truly are among the most vulnerable U.S. consumers,” Philbin said in the letter.
Everything costs $1 at Dollar Tree, so the company can’t raise prices to deflect higher costs.