A Dollar Tree store in Jeffersonville, Ind. (Luke Sharrett/Luke Sharrett/Bloomberg)

For more than 30 years, Dollar Tree has made a singular promise to its customers: “Everything’s $1.”

Not anymore.

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

That price increase, spurred by activist investors, comes as the company braces for millions of dollars of new tariff-related expenses that analysts say will disproportionately affect the chain and its lower-income shoppers. The dollar store industry is dominated by two companies: Dollar General and Dollar Tree, which also owns Family Dollar.

Dollar Tree “is the ‘poster child’ for tariff impact,” Judah Frommer, an analyst for Credit Suisse, wrote in a recent note to clients. “China is the source of a substantial majority of the company’s imports.”

The company, he added, imports about 40 percent of its merchandise directly from China. It also sells products from two dozen other countries, including Mexico, leaving it vulnerable to additional new tariffs being threatened by President Trump. Trump took to Twitter late Thursday to say Mexican imports would be subject to a 5 percent tax beginning June 10.

“At the end of the day, these tariffs are a tax on U.S. consumers, and they disproportionately affect the dollar store consumer who is living paycheck to paycheck,” said Anthony Chukumba, an analyst for Loop Capital Markets in Chicago.

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

American families will pay nearly $800 more a year on everyday items, including cribs and toilet paper, as a result of the Trump administration’s tariffs on Chinese imports, according to a report by the Trade Partnership, a Washington-based research-and-consulting firm. That number will probably rise even more if similar taxes are levied on Mexican imports.

The chain’s largest competitor, Dollar General, said this week that it will probably have to mark up prices to keep up with tariffs.

“We will do everything we can to minimize the impact of tariffs on our customers,” John Garratt, Dollar General’s chief financial officer, said on an earnings call Thursday. “But even with these efforts, we believe our shoppers will be facing higher prices as 2019 progresses.”

The majority of Dollar General’s customers have annual household incomes of less than $49,900, and one-third live in households that earn less than $25,000 a 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” label was stuck to every item in the store’s Fourth of July display, including American flags, “patriotic sunglasses” and red, white and blue flip-flops.

There were imports from Mexico, too, including Lay’s 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 don’t let them raise prices,” said Doretha Leftwood, 71, who had stopped at Dollar Tree for artificial flowers for her parents’ graves, as well as crackers, applesauce and eggs. “I don’t get but one Social Security check a month, and when it’s gone, it’s gone.”

Leftwood, who lives in Northeast Washington, said she buys food as well as household items such as soap and bleach from dollar stores because they are more affordable than other supermarkets and drugstores.

“Who can afford to go to CVS anymore?” she said. “When I shop here, I can really stretch my money.”

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

Gary Philbin, Dollar Tree’s chief executive, said in March that a 25 percent tariff on Chinese products could end up costing the company $140 million. But, he said, the company had “mitigated most of that” by negotiating with vendors and sourcing from other countries.

The company’s decision to sell items priced $2 to $5 was made before the newest tariffs on Chinese goods went into effect this month, said Randy Guiler, vice president of investor relations. On Thursday, the company also lowered its profit expectations for the year because of a $15 million increase in import freight costs.

“We will continue to work on offsetting or mitigating tariff exposure,” he said in an email.

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