Discount stores

Big discount stores like Dollar Tree suffer from rising supply chain costs

A crew member’s positive Covid-19 test spun the ship around when the charter vessel Dollar Tree arrived in China to load the goods. The trip was delayed for two months.

CEO Mike Witynski shared the story and other transportation issues in his earnings announcement Thursday. He spoke openly about the boom in the supply chain and the labor shortage. And he said they’ve made it difficult for retailers who sell most of their items for dollars. And they should continue until next year.

“The Dollar Tree banner is more price sensitive than other banners in the industry,” he said.

Dollar Tree announced Thursday that the price hike will reduce earnings per share from $ 1.50 to $ 1.60. That’s more than double the May forecast of 60 to 65 cents. Earnings per share for the year are estimated to be between $ 5.40 and $ 5.60, which is lower than analysts’ expectations.

The company’s stock price fell 12% on Thursday.

Major discounters suffer as the cost of transporting goods around the world rises due to the Covid epidemic and port congestion. Retailers such as Dick’s Sporting Goods, Best Buy and Williams-Sonoma posted higher profits this week. These companies have found that less promotion does not discourage customers from spending. Some say they pay more to move goods quickly, like flying goods, but buyers keep buying.

However, at low cost retailers, buyers walk away if they can’t afford to pay more or if the item doesn’t seem like a good deal. This is constraining because retailers have to choose when to increase prices and when to absorb the higher costs.

Todd Bassos, CEO of Dollar General, said in a statement Thursday, “We know our major customers can’t do as many price increases, so we are thinking very carefully about delivering pricing. I have come. “

The share of the rival discount chain store fell 4% on Thursday afternoon.

Low-cost retailers, which also cater to price-sensitive shoppers, also fell on Thursday. Ross, TJ Maxx and Burlington stores fell about 4%, 2% and 9% in the early afternoon, respectively. Nordstrom, including Nordstrom Rack, fell almost 7%.

The spread, which counts low-cost retailer Old Navy as its largest sector, has narrowed by about 5%.

Some have detailed how they manage to overcome headwinds.

Dollar General’s Vasos said retailers are negotiating with suppliers and have replaced some items with similar items in recent quarters to keep prices low.

According to Dollar Tree’s Whitinsky, the retailer has reserved space for chartered vessels for the first time, including signing a three-year contract for large vessels. Dollar Tree and Family Dollar stores had sufficient inventory for the new half of the year as they purchased more US merchandise. We also favor sea containers depending on the season and demand.

In addition, he said he will continue to order seasonal purchases 30 days ahead of normal and monitor the availability of shipments at ports in China and the United States.

Over the phone, company executives highlighted predictions from industry experts that maritime capacity would normalize no later than 2023 as more ships become available.

Still, CFO Kevin Wampler acknowledged the rapidly changing environment during the pandemic – and said it would be difficult to estimate future tariffs.

“There could be another Covid outbreak,” he said. “There can be a lot of different things that can affect him. Considering that this is probably the most dynamic thing that we have ever seen, because it is relevant to this market. I think we have to. “

-CNBC Robert Ham Contributed to this report.

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