Choices for Dollar Tree as Commodity prices rise

An article in the Wall Street Journal (January 22,2011) describes the dilemma faced by Dollar Tree – a retailer that charges one dollar for products.  Dollar Tree provides an interesting example of a retailer for whom retail price is not a choice variable – but assortment and pack sizes are. When prices for commodities declined, the company responded by increasing pack sizes – the article quotes prices for 50 common items as 28 % lower than WalMart.  But what if prices rise, as they are now.  Can pack sizes be decreased when SKUs come in standard sizes ? Should items be dropped to maintain profitability ? Or should margins be sacrificed in the short run to maintain sales volume ?

About aviyer2010

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