Popular discount retailer sounds tariff warning consumers need to hear

The past few years have been a tough storm for retailers to weather.

Inflation has tightened retailers’ margins and made it more difficult to stock their shelves affordably. But more than that, inflation has changed the way consumers shop.

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At a time when essential bills are eating up more of people’s paychecks, consumers are being forced to make tough choices.

For some, that means cutting back on restaurants and leisure. For others, it means not buying grocery items that aren’t on sale.

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And unfortunately, with tariffs looming, things could get worse before they get better.

A number of retailers have already been blunt about the potential impact tariffs could have. From higher prices to limited inventory, the retail space could look very different a few months down the line as the industry copes with unwanted changes.

Discount stores aren’t immune to tariff-related disruptions

Because tariff policies are still a work in progress, it’s too soon to understand their full impact. But it’s fair to assume that the cost of procuring goods is going to increase across the board for retailers.

That’s going to pose a huge challenge for discount stores, whose business model is centered on keeping prices affordable for customers.

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Even retail giants like Walmart will face their share of challenges as tariff policies come to a head. But due to their massive inventory, such companies have a fair amount of latitude to adjust to the impact of tariffs.

Discount stores may not have that same flexibility, as their inventory is more limited.

These stores also have the challenge of needing to keep their price points fairly stable. That gives them very little wiggle room to adjust in the face of tariffs.

Dollar Tree COO says tariffs could cause a major shakeup

At a time when customers are trying to save money at every turn, you’d think dollar stores would be poised to shine. But Dollar Tree reported mixed results for its most recent fiscal quarter.

Gross profit declined 2.8% year over year. And the company’s outlook is anything but certain with tariffs thrown into the mix.

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A big part of the issue stems from Dollar Tree’s limited array of items. The retailer typically carries around 10,000 SKUs (stock keeping units), which pales in comparison to retailers like Walmart and Target. But in the face of tariffs, that could be both a blessing and a curse.

On the one hand, Dollar Tree may be able to leverage its relationship with suppliers to negotiate once tariffs come down the pike. On the other hand, given the company’s smaller inventory and lower price point, Dollar Tree may not have much flexibility to negotiate.

As it is, customers did not take kindly to the company’s decision to raise its primary price point to $1.25 a few years ago. If that price ticks upward, it could alienate consumers even more.

Just as significantly, consumers may find themselves increasingly strapped for cash if discount retailers like Dollar Tree are forced to raise prices.

During the company’s last earnings call, Dollar Tree COO Mike Creedon refused to mince words on the situation at large.

“The imposition of this year’s tariffs has introduced uncertainty and volatility,” he said.

However, the news wasn’t all bad. Creedon was also quick to reassure investors that the company was equipped to cope with tariffs.

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“We have multiple contingencies in place to address a variety of tariff scenarios and mitigate the earnings impact of higher tariffs,” he said. “These include negotiating supplier cost concessions, changing product specs, dropping non-economical items, moving country of origin, and lastly, exercising the flexibility multi-price gives us.”

Still, consumers should brace for changes at Dollar Tree one way or another, whether that means a higher base price point or the exclusion of key items from the store’s shelves.

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