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Stock of the Week: Dollar Tree

What happens when the dollar store gets expensive.

Andrew Willis 24 May, 2022 | 4:28AM
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Andrew Willis: With inflation soaring and disposable incomes getting thinner, it makes sense that consumers would be increasingly shopping at dollar stores – to the benefit of investors. But that might not happen.

Dollar stores like Dollar Tree (DLTR) might have enjoyed a nice bump in sales with COVID, but the boost could be fleeting. Now that dollar stores have breached the one-dollar mark on products, the line for customers in cities is starting to blur between dollar stores and convenience stores, mass merchandisers and grocery stores.

The landscape for dollar stores in smaller towns and more rural areas is better for dollar stores as digital retailers might not yet have the reach for low-cost delivery, which is key for lower-to-middle income customers that need a small basket of goods nearby. But those areas can only support a limited number of retailers – and incumbents like Dollarama and Dollar General aren’t likely to give that up.

Equity Analyst Zain Akbari doesn’t believe Dollar Tree has a durable competitive advantage in a fast-changing retail environment with minimal switching costs. We do note that fast-changing product lines create a ‘treasure hunt’ experience at dollar stores which is hard for online retailers to match, but that might be more fun for customers rather than investors.  

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Dollar Tree Inc151.20 USD0.99Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar.ca. He previously produced content for Fidelity Investments and finance events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @AndrewWillisCDN.

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