Why Dollar Stores Are So Cheap
Updated: Nov. 08, 2022
Seriously, how do they manage to sell everything from pregnancy tests to picture frames for just a dollar? We uncovered their secret strategies.
The mysteries of the dollar store
Dollar stores are the places to go when you don’t want to spend a bundle but need to stock up on toothpaste, ice cream, pots, pans, and so much more. You might have already figured out the difference between Dollar Tree and Dollar General, but have you ever wondered how on Earth they offer everything for just $1—and still somehow stay in business? We decided to investigate. Once you’ve got the answer to this mystery, find out why Aldi’s groceries are so cheap.
They buy in bulk
Dollar stores know how to get a good deal—and turn it into an even better one. Think of it this way: It’s like they shop at Costco and then sell you the individual products, says Willie Greer, founder of the Product Analyst. They also may buy millions of those bulk items and divide them up for each of their stores. This brings down the price company-wide. On a much smaller scale, here are 5 ways you can save more money when buying in bulk.
They sell small products
“Usually, they sell smaller items or [ones] in lesser quantity so that they can put a high margin into it,” Greer says. “To customers, this seems OK, especially if they only need a quarter of a certain product.” But it could also mean you’re shelling out $1 for a quarter of the amount you’d usually purchase—meaning that you might end up paying more than you should for the amount you’re getting. So, before you buy, make sure the price is truly right. Here are another 12 things dollar store employees won’t tell you.
They sell liquidated items
Dollar stores operate by selling liquidated, outdated, or otherwise cheaply acquired goods and inventory, typically when another chain store or distributor goes out of business, says Baron Christopher Hanson, owner of RedBaron Consulting. This doesn’t mean that anything is necessarily wrong with the products, though, and Hanson himself says that he and his family regularly stock up on basics there.
Their inventory changes all the time
Most dollar store managers have little or no idea what inventory is arriving, and customers can’t make requests, Hanson says. What do they know? “They know that certain categories like cleaning products or party supplies or snack foods will be filled,” he explains. “Their primary job is to stock the shelves with whatever inventory is delivered each week, to keep the registers open, and to open and close the store.” The company itself makes stocking decisions based on the best deals they can secure. Make sure to avoid these 13 ripoffs at the dollar store.
They are very careful with pricing
Dollar store items are often not stocked unless they come in at an average price of 25 to 33 cents all-in, Hanson says. They will never stock anything above 50 cents, so their profit margin is actually quite high. The bottom line (so to speak)? If the base product costs too much, they won’t carry it, because they need the profit margin to stay high. Dollar stores aren’t the only ones who do this, of course. Check out these 15 supermarket items with the highest markups.
Some dollar stores charge more
Most dollar stores offer everything for just $1. But some have most items priced between $1 and $2, plus some that range from $3 to $7. These pricier items could be anything from larger items to the brand-name products. Still, even those stores operate much the same way in terms of acquiring inventory for pennies on the dollar, Hanson says. It doesn’t make much sense that they’re still called “dollar stores,” but it is what it is. Discover the 11 things you should have been buying from the dollar store this whole time.
The quality isn’t always the best
If you’re buying basic home goods like kitchen tools, hygiene products, and cleaning items, you’re probably getting a great deal and a decent-quality product, says Hanson. The same goes for seasonal items such as gardening gloves, holiday decorations, and candles. But while these items are pure gold, others are complete junk. Think of it like bargain hunting, and make sure to be a discerning shopper. “You never really know what’s going to be put out on the shelves, and that’s the beauty of the dollar store,” Hanson says. “The book section is our favorite, because you can find great reads for $1 that were acquired in liquidation or bankruptcy.” That said, here are 21 things you might want to skip at a dollar store.
They buy food items that are close to their expiration dates
Dollar stores have long had a bad reputation for their fresh produce—and many still don’t carry any. But the ones that do are generally doing a good job with it these days, according to a 2018 study published in the International Journal of Environmental Research and Public Health. Researchers found that the quality of their produce is on par with what you’d find at grocery stores. Items like seafood and cheeses are more of a gamble, however, since dollar stores often acquire them very close to their expiration dates. “Reading the label and expiration date is highly recommended before ingesting anything,” says Hanson.
You’re encouraged to buy more than you need
Ever walk into a dollar store intending to buy $5 worth of items and end up leaving with two giant bags full of stuff? That’s because dollar stores cleverly pack their locations, says Kimberly Porter, finance expert and CEO of Microcredit Summit, a personal finance publication. The store shoves a lot of products into a small space, which contributes to consumers grabbing more items. Plus, you may walk in for a great deal on greeting cards or gift bags, but you also end up buying a handful of other things you may not need that are actually a mark-up, such as small bottles of juice or milk. Most people will simply assume they’re getting a good deal on everything and not think too hard about their purchases.
They have a wide customer base
Dollar stores are to corner shops what discounters are to supermarkets, says Michael Sena, founder of Senacea, a spreadsheet consultancy firm. “They concentrate their assortment on staple items, so every time you go there, you can spot some kitchen utensil or small item you broke,” Sena says. “That allows them to reach a wide customer base, and makes dollar stores recession-proof.” Essentially, everyone can find something they need at the dollar store, and they go through their inventory quickly.
They cut other costs
These stores don’t spend money on advertising, as they focus on competing with price and availability. Standardized pricing lowers the cost of stock management, labeling, and therefore staffing costs, Sena says. Similar store plans in every location also make it easier for the employees to distribute products without thinking much; this means they can staff fewer people, since it doesn’t take as long to stock the store and label the products.
They don’t usually sell brand names
The dollar store itself is the brand, and the cost of the items is the draw, says Stacy Caprio, of Deals Scoop. “So they are able to private-label and sell their own items without having to pay the high brand-product markups that you see in regular stores,” she explains. If you do see a brand name, then it’s most likely been overstocked elsewhere or it’s last season’s item. If you’re a Costco fan, these are the 10 Kirkland items you should always buy there.
They focus on volume
Customers very rarely buy just one item from the dollar store, Sena says. Some of the major profit sources for these shops are impulse purchases, such as chocolate bars or drinks. However, as a smart shopper, you should remember this golden rule: “An extra dollar is not a fortune, but if you know that you are never going to use a certain product, it is not worth even a dollar for you,” Sena says. Next, learn the 50 insider secrets to help you save at all your favorite stores.
Sources:Â
- Willie Greer, founder of The Product Analyst
- Kimberly Porter, CEO of Microcredit Summit
- Michael Sena, founder of Senacea
- Stacy Caprio, of Deals Scoop
Originally Published: August 20, 2020
