The offers consumers similar products at a lower cost.

The industry

               Dollar
Tree, Inc. (DT) is in a discount variety stores segment of specialty retailers
industry. The industry consists of companies offering diverse products at a
discount. In 2016, the discount stores segment was estimated to be $47 billion,
where, from 2012 to 2016, the top five dollar-store chains increased their
numbers by 21 percent and their sales by 31 percent (cite). Similar to
department stores in size, layout, and products, it offers consumers similar
products at a lower cost. These discount stores are geared towards a specific
demographic, typically low to middle income customers.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

               The
discount retail industry segment is highly competitive, and the increase in competition
can be expected. The industry is anti-cyclical, having lower risk stemming from
a weakening economy, as the segment prospers in time of recession and economic
downturns, when the consumer becomes more price-conscious. When the economy
picks up, the consumers continue to focus on value and convenience.               After acquiring Family Dollar, DT became
the leading fixed price discount variety store in the U.S with more than 14,300
stores. Major DT competitors are Dollar General, Wal-Mart, Target, Big Lots,
Fred’s, and Dollarama who differ in format and utilize different merchandising
strategies. The companies compete based on price, quality, store location, variety,
customer service, as well as effectiveness of marketing and distribution channels.
The facts that some competitors have greater financial and marketing resources,
some have dedicated spaces in their stores for $1.00 priced items, and that
with the growth in food and beverage industry and a lack of significant economic
entry barriers more players enter and saturate the market further intensify competition.

               Additionally,
the rise of the internet, increasingly user-friendly websites, online discounts
and offers, and consumer purchasing power and behavior resulted in the consumer
shift from brick and mortar to an online environment. According to Census
Bureau of the Department of Commerce report in May 2017, the e-commerce sales
for the fourth quarter of 2016 was $102.7 billion, an increase of 14.3 percent
from the fourth quarter of 2015 (10K). The growing online retailing provides
the consumer with the convenience of shopping from home, while helping
companies save on the operating costs. As DT competes by offering convenience
and price, on one hand, it will continue to have its price-conscious customers
who do not want to pay for shipping or wait for their order to arrive; on the other,
DT has its online presence with the dollartree.com through which it
merchandises its products, offering free shipping to the store for pick up.

Other environmental factors affecting industry

               An
environmental factor that can positively affect DT financial performance is the
new tax reform that can benefit DT more than other retailers. DT’s current
effective tax rate is 33-34 percent (37 percent prior to Family Dollar
purchase) and is higher compared to many multinational retailers. The new
corporate tax reduction to 20-22 percent will not only allow DT to save more money,
but these savings will also be more substantial and beneficial to the DT compared
to its competitors. DT can be expected to reduce its $7 billion debt it took on
to acquire Family Dollar and further expand its operations, greatly benefiting its
shareholders. On the other hand, if a border adjustment tax is implemented in
the future, it could substantially negatively affect DT, as more than 40
percent of its merchandise it imports from abroad, and a substantial part of
their goods from U.S. vendors can also be expected to be imported. Additionally,
since the majority of DT’s goods are imported, it is also vulnerable to
political and economic situation in those countries. Any international
conflicts or economic crises in other countries resulting in work stoppages or
raw material shortages will adversely affect DT.

               Other
economic and political factors that may affect DT’s performance are increases
in merchandise cost, wages cost, shipping and freight cost, as well as foreign
exchange rates. For example, in 2016, the Department of Labor enacted changes
to overtime regulations, which since have been blocked, nevertheless creating
an uncertainty. If these changes take effect, DT will have to pay their managers
higher wages, therefore increasing costs. While Family Dollar could increase its
prices to offset the costs resulting in a less customer traffic, being a fixed point
price retailer, DT cannot increase its prices, and will have to find a way to
operate more efficiently, which can prove to be difficult in an expanding economy.

               Technology
factor can also have an adverse effect on DT as it relies on the computer and
technology systems to manage inventory and process credit card transactions,
among other business operations. Thus, DT’s computer and information environment
is vulnerable to computer viruses and security breaches, where safeguarded
customers’ and vendors’ data, as well as business records and intellectual
property data can be compromised and lost, which can result in a negative
publicity and costly response measures.