Trump tariffs hit dollar store prices

For more than 30 years, Dollar Tree has made a unique promise to its customers: "Everything is $ 1".

No longer.

The Chesapeake, Virginia-based retailer, which relies heavily on cheap-made products from China, said this week that it had begun to try higher prices at some of its stores. Soon, more than 100 Dollar Tree stores across the country will sell items that cost up to $ 5.

That price increase, driven by activist investors, occurs when the company prepares to receive millions of dollars of new expenses related to the rates that, according to badysts, will disproportionately affect the chain and its lower income buyers. The dollar store industry is dominated by two companies: Dollar General and Dollar Tree, which also owns Family Dollar.

Dollar Tree "is the" son of the poster "for the tariff impact," Judah Frommer, an badyst at Credit Suisse, wrote in a recent note to clients. "China is the source of a large majority of the company's imports."

The company, he added, imports around 40 percent of its merchandise directly from China. It also sells products from another two dozen countries, including Mexico, which makes it vulnerable to new additional tariffs threatened by President Trump. Trump took to Twitter on Thursday night. say that Mexican imports would be subject to a 5 percent tax starting on June 10.

"At the end of the day, these rates are a tax for consumers in the US And disproportionately affect the consumer of the dollar store that lives from check to check," said Anthony Chukumba, an badyst at Loop Capital Markets in Chicago

Retailers across the country have warned that prices could rise by up to 20 percent this year, as they face higher costs on items such as shampoo, suitcases and salmon.

US families will pay nearly $ 800 more per year for everyday items, including cribs and toilet paper, as a result of Trump administration tariffs on Chinese imports, according to a report by the Commerce Association, a consulting firm and consultancy based in Washington. . That number will probably increase even more if similar taxes are imposed on Mexican imports.

The chain's main competitor, Dollar General, said this week that it will likely have to raise prices to keep up with rates.

"We will do everything we can to minimize the impact of tariffs on our customers," John Garratt, CFO of Dollar General, told an earnings conference on Thursday. "But even with these efforts, we believe our buyers will face higher prices as 2019 progresses."

The majority of Dollar General customers have annual family incomes of less than $ 49,900, and a third live in households earning less than $ 25,000 per year.

Thousands of Chinese-made products, including toothbrushes, kitchen towels and frozen cauliflower, lined the shelves of a Dollar Tree store in Washington during a recent visit. A "made in China" tag was affixed to each item on the store's July 4 display, including American flags, "patriotic sunglbades" and red, white and blue flip flops.

There were also imports from Mexico, including Stax Stax chips, Ultrabrite toothpaste and La Botanera hot sauce.

Shampoo for $ 1 at a Dollar Tree store in Louisville, Ky. (Luke Sharrett / Luke Sharrett / Bloomberg News)

"Oh, please, do not let the prices rise," said Doretha Leftwood, 71, who stopped at Dollar Tree to buy artificial flowers for her parents' graves, as well as cookies, apple sauce and eggs. "I only receive a Social Security check per month, and when it's gone, it's gone."

Leftwood, who lives in northeastern Washington, said he buys food and household items like soap and bleach at dollar stores because they are more affordable than other supermarkets and pharmacies.

"Who can afford to go to CVS anymore?" He said. "When I buy here, I can really stretch my money."

Dollar Tree has been under pressure from investors to raise its prices as it struggles to change the Family Dollar chain, which it bought five years ago for $ 8.5 billion.

Gary Philbin, CEO of Dollar Tree, said in March that a 25 percent tariff for Chinese products could end up costing the company $ 140 million. But, he said, the company had "mitigated most of that" by negotiating with suppliers and hiring other countries.

The company's decision to sell items priced from $ 2 to $ 5 was made before the new rates on Chinese products went into effect this month, said Randy Guiler, vice president of investor relations. On Thursday, the company also reduced its profit expectations for the year due to a $ 15 million increase in import transportation costs.

"We will continue working to compensate or mitigate the tariff exposure," he said in an email.

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