Discount retailer Dollar Tree Inc. is trying to ramp up its supply chain to match its ambitious expansion plans.
The company plans to spend more to improve its supply chain as it increases the use of data analytics and automation to get more goods more efficiently and quickly to its more than 16,000 Dollar Tree and Family Dollar stores, as well as to about 590 more outlets it plans to open this year.
The supply-chain upgrades are also coming as Dollar Tree resets its consumer pricing strategy, with plans to roll out items listed at $3 and $5 to more stores after lifting its pricing cap for many goods by a quarter last year to $1.25. Chief Executive Michael Witynski said he would like to speed up introducing higher-priced products but deliveries of goods ordered nine to 12 months ago have been delayed by supply-chain congestion.
“It’s really supply chain right now that’s tempering our speed,” Mr. Witynski said on an earnings conference call on Thursday.
Dollar Tree’s low price-point made it particularly vulnerable to soaring supply-chain costs that tormented U.S. retailers last year, prompting the company to raise prices on more items above $1.
The Chesapeake, Va., retailer was also hurt by the unexpectedly large volume of its containers bumped from trans-Pacific shipping routes amid fierce competition for space. That forced the company to secure spots on chartered ships at higher cost and to seek suppliers with other distribution channels.
Dollar Tree appears to have made progress on its import supply chain since last year, as merchandise inventories of $4.8 billion rose 33% in the first quarter from the same period a year earlier.
The company has been insulated from changes in buying patterns that cut into sales at big-box retailers like Target Corp. and Walmart Inc. as shoppers pulled back on certain items because of inflation. Dollar Tree’s consolidated net sales of $6.9 billion in the first quarter were up 6.5% from a year earlier.
Dollar Tree didn’t specify how much it will add to capital spending after increasing it to $253.4 million in the first quarter, up 13% from a year earlier, but the retailer said supply-chain improvements would be a focus of the investment. The company earlier this month said it had hired John Flanigan, a former head of supply chain at rival Dollar General Corp. , as its chief supply chain officer.
“This is the ideal time to invest in our future,” Mr. Witynski said.
Dollar Tree executives said they expect to continue struggling with shortages of some items, such as helium for balloons. They are also being squeezed by soaring fuel and energy prices driven in part by Russia’s invasion of Ukraine.
The executives said the retailer also contracted more space than needed on ocean carriers for 2022 in case its containers get bumped later in the year, and that the company still relies on chartered ships to move some of its cargo.
“We anticipate that we will continue to experience uncertainty related to inflation, the global supply chain, and geopolitical factors,” Chief Financial Officer Kevin Wampler said on Thursday’s earnings call.
Write to Paul Berger at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
