CHESAPEAKE, Va. — Whoops. Dollar Tree Stores has ended its experiment with price points that were not $1 or less.
“We called it ‘Oops’, and the strategy was, ‘Oops, we know this isn't $1 but it's too good to pass up,’” explained Bob Sasser, president and chief executive officer, in a conference call discussing earnings last week. Shoppers, however, didn't take to the program, which was tested in 29 stores, and it wasn't particularly beneficial to Dollar Tree either, Sasser admitted.
“It wasn't accretive to margin, it wasn't accretive to sales, and it was distracting to the customer,” said Sasser, explaining why the company dropped the program after a year-long test offered items such as multipacks of toilet paper and larger sizes of detergents at price points more than $1. The company now will use multiple price points at its Deal$ subsidiary only.
Deal$, which Dollar Tree acquired from Supervalu in 2006, is being transitioned from a dollar-only concept and as a result is seeing higher average purchases, the company said. In concert with Dollar Tree, it also gives the retailer a range of distinct value offerings.
“At Dollar Tree everything is $1 — it's clear, the customer understands it, loves it and responds to it,” Sasser said. “At Deal$, everything is not $1 — everything is value. We lifted that dollar restriction to bring more categories to the consumer.”
In the fourth quarter, which ended Jan. 31, Dollar Tree reported net income of $105.2 million, an 11.1% increase from the same period last year. Dollar Tree previously reported that sales for the quarter improved by 6.8% to $1.4 billion, while comparable-store sales were up by 2.2%.
Sasser said comparable food and consumable sales improved by 3.4% during the quarter, but that the mix brought down gross margins slightly, to 35.6% of sales. Inclement weather in parts of the country contributed to lower comparable sales than expected, he added.
For the fiscal year, Dollar Tree reported net income of $229.5 million, a 14% increase, on sales of $4.6 billion. Annual sales increased 9.5%.
In other news, Dollar Tree said it added freezers and coolers to 135 stores during the quarter, bringing its total to more than 1,100 of its 3,500 stores nationwide. It is also seeing an increase in the amount of transactions by debit card, Sasser said, with such transactions up by 3% for the year.