Dollar Stores As Of Yet To Feel Effect Of New Tariff’s—Is Their Time Coming?

Dollar stores are able to circumvent the effect of China tariffs with many wondering how long it will last.

source: Flickr

One has to admit it seems a little bizarre to see the stocks of such retailers as Dollar Tree and Dollar General having one heck of a year, especially when many consider the president’s tariffs as wrecking-havoc on Corporate America’s bottom line.

Both retailers have enjoyed a very impressive upswing in their stocks, 14%, and 23% respectively, this year, even with only an 11% gain of the Dow Jones Industrial Average overall.  What needs to be kept in mind is that each dollar store has pretty much the same business model—obtaining their wholesale inventory as the lowest price possible from overseas—mainly from vendors that are housed in China.  They then turn around and sell those items for at least $1—or a little more—to the majority of US low-income shoppers.

With this type of business model, one would think that the current tariff’s that Trump has slammed on the China market would come back to kick the retailers in the butt.  However, it would seem that is not the case—on the contrary—both retailers are fairing the trade war pretty well.

Retailers such as dollar stores are very dependent on the items they get from China—this is a well-known fact—and as such, they are sure to be keeping an eye on the effect that the new tariffs will have on their bottom line.  Dollar Tree alone relies on the country of China for 40% of its current inventory, as stated in the company's recent annual report.  On the other hand, its newly acquired Family Dollar stores currently only rely on China for 18% of its inventory.  And finally, Dollar General states that roughly 6% of its products actually come from China.

So, how do they keep the bottom line from shrinking is the question.  Each retailer has succeeded, now six months into the year, in circumventing any type of massive blow to their bottom lines.  It would seem to achieve this the retailers are continually working every possible angle to make sure that any additional costs pretty much remain at bay.

Todd Vasos, Dollar General CEO, stated: “Our efforts have focused on four key areas:  continual negotiations with our vendors, product substitution, product re-engineering and country of origin and diversification.”  He went on to state that the retailers do everything in their power to prevent the increase in tariffs from trickling down to their customers.

So, what’s the verdict—you decide.

Will the dollar store retailers be able to keep the effect of the increase in tariffs from their customers?