Dol­lar Tree finds it­self in a bind over tar­iffs on China

Store where ev­ery­thing costs $1 can’t hike prices

USA TODAY International Edition - - MONEY - Paul David­son

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.

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