Every year, dollar stores see higher and higher earnings, but how can a store that seems like
it's giving things away turn itself into a multi-billion-dollar enterprise?
The answer is simple: that dollar isn't always the great deal it appears to be.
Here are their secrets.
Whether times are good or bad, you can still count on people to flock to dollar stores
because they have the one thing everyone loves: convenience.
Sales for Dollar General are always on the upswing, with the chain seeing an increase
of 3.7 percent between 2017 and 2018, regardless of the state of the economy.
Take it from Dollar General CEO Todd Vasos, who had this to say about their regular customers:
"We have seen no sign of trade out or trade up from our core customers.
Even in a good economy, [they are] still looking for value and convenience."
So, basically, no matter how much money people have, they still want something that bigger
grocery stores can't give them.
Dollar stores are not just convenient because their items are cheaper, but also because
there seems to be one on every corner — and that makes them perfect for a quick fill-in
trip between your weekly grocery runs.
These stores are also typically smaller than the ones in a big chain like Walmart, which
means that you can usually get in and out with your emergency bag of dog food, a handful
of snacks, or supplies for your kid's art project in just a couple of minutes.
The fact that most people are on to this, means dollar stores are always making money
— even if customers buy just a few things.
"Your gloves!
Tomato seeds!
Fertilizer!
Hey, Pat Sajak, I’ll solve the puzzle!
GARDENING!”
It's common knowledge that the success of a business is largely based on its location.
If you aren't in a place where you can offer something that the local community needs,
you aren't going to have much of a customer base.
This is why Dollar Tree and Dollar General are mostly located in areas where people with
a lower income level reside, and where big box stores aren't easily accessible.
According to CNN Business, 75 percent of Dollar General stores are located in towns that have
less than 20,000 people.
The chain targets sparsely populated rural areas where it can be the only game in town
when it comes to buying food or other supplies.
In most cases, the closest grocery store is more than 15 or 20 miles away, making the
dollar store a much more convenient option.
Dollar General also strives to put locations in areas that are known as "food deserts."
These areas — which aren't just limited to rural towns, but may also include underserved
urban areas — are places in which fresh food is not readily available.
To take advantage of this, dollar stores offer snacks and are even working to expand their
food sections, giving people even more reason to shop there.
More customers means more dollars, and those dollars soon add up to big bucks.
It is no secret that a store that sells most items for $1 was made in the interest of appealing
to customers who don't have a ton of money.
These shoppers don't just want a better deal than they can find at other stores, they need
one.
Dollar stores capitalize on this need by opening stores in lower-income areas and presenting
themselves as a cheaper and more convenient option.
If you don't have to drive half an hour to get to a full-size grocery store, you don't
spend as much money on gas, which helps to save a lot of money in the long run.
The savings only continue when you arrive at the store and find thousands of items apparently
offered at a much lower price point than competitors.
“It's going to be a savings stampede!”
“SAVINGS.
STAMPEDE!”
Before you start filling up your cart with all kinds of $1 items, there's something you
should know.
That dollar is not always as good a value as it seems.
Stores like Dollar Tree and Dollar General count on the customer being distracted by
the appearance of a discount and not taking the time to check the difference between the
sizes and the quality of the items at their stores.
Because of this, unsuspecting customers end up actually paying more for an item than they
would have somewhere else, and it usually doesn't last nearly as long.
In reality, it is grocery stores that offer the highest discounts, although they see lower
earnings overall.
For every dollar spent by a customer at Dollar Tree, the company makes a profit of 35 cents.
Walmart, for example, makes only 24 cents per dollar.
This is because the items at dollar stores cost less to manufacture, and the company
isn't losing any money by keeping them priced at just a dollar.
The number one best trick carried out by dollar stores is that they are actually giving you
less for your money.
You might think you found a great deal by buying a box of aluminum foil for $1, but
check the length of the roll.
Let's just take that as a single example — one of several compiled by HowStuffWorks.com.
That $1 box of foil you buy at Dollar Tree is 15 feet long, but if you spend more at
Walmart and get a larger box, it works out to over 18 feet per $1.
The same applies to products throughout the store.
As if this weren't bad enough, you should know that according to Macon Brock, one of
the founders of Dollar Tree, dollar store owners are basically counting on people to
not think so they don't notice what's going on behind the curtain.
He wrote in his book:
"When a customer walked into our store she could shut off her brain.
She didn't have to think, didn't have to calculate how much she was spending.
All she had to do was count – 'One, two, three, four, five, six.
I have six items and I have six dollars.
I can buy this.'"
At a dollar store, you get what you pay for.
While a dollar might be a deal for some items, you can't expect something long-lasting and
high-quality if you can pay for it with loose change.
Whether it's Dollar General, Dollar Tree, or any other chain of dollar stores, one of
the biggest ways that the business saves money is by selling items that are made of cheap,
flimsy materials.
And sometimes, that's downright dangerous.
According to the Washington Post, children's toys are one of the worst things you can buy
at a dollar store.
Many are made with tiny pieces that come off and can be choked on, and they fall apart
surprisingly quickly because they are made of parts that cost next to nothing to put
together.
Electronics and things like power strips are a bad idea too.
After one use (or 20), they could malfunction and ruin your devices because they weren't
made with the proper materials and safety standards.
Most people don't expect their dollar store purchases to last forever, and when one thing
breaks, they just go back and get a replacement for another dollar, which means more money
in the dollar store's pocket.
Instead of buying a higher-quality item at another store for $5 once, they end up buying
the same, cheaply made item ten times at the dollar store and spending twice as much without
noticing, which is all part of the company's plan.
If you've ever been inside a dollar store, you will have noticed that it's much smaller
and more compact than a typical grocery store.
This is no accident.
According to Business Insider, a Dollar Tree store is usually small, with an average size
of just 8,000 to 12,000 square feet.
They say that's about one-eighteenth of the size of the average Walmart — so it's not
just a small difference.
The stores are designed this way so that you can easily go through the entire store in
just a matter of minutes, making it more likely that you can find something you need or want
without much searching.
There is also a method to the way the aisles are arranged that affects what shoppers buy.
Typically, seasonal items like Christmas decorations, party favors, or summery cups and pinwheels
meet you as soon as you walk in the door, tempting you with the stores' newest inventory
right off the bat.
The products that shoppers buy most frequently, such as food or children's toys, are placed
in the back, meaning that you have to walk through the entire store — and past all
the other tempting deals — to get to them.
This set-up has been proven to sell more products because people leave with a lot more than
what they came in to get.
“Oh… when did you get this?”
“One minute ago…”
The average small, independent grocery store employs around 14 people, but the average
Dollar Tree and Dollar General only employs eight.
Dollar stores are typically smaller and don't see the huge rush that other retailers do,
so they can afford to get by with only a handful of workers per shift.
As a result, they don't have as many employees to pay and provide insurance and benefits
for, so they don't see as much money going out as other stores do.
The downside to this is that most dollar stores are located in areas in which people are struggling
economically.
While the arrival of a new Walmart or Target in town could mean many more jobs for the
locals, a new Dollar Tree really doesn't.
So while the chain itself is saving money and raking in more and more of it, this money
isn't being spread out into the community, which is one of the major complaints about
this type of establishment.
Business Insider called private labels a dollar store's, quote, "secret weapon."
Most big box stores offer private label products too, but this practice is especially lucrative
for stores like Dollar General and Dollar Tree.
A private label is usually one owned by the store, and they typically cost less to manufacture,
and therefore appear on the shelves with a price that is less than half of what name
brands charge for the same item.
At one point in time, this strategy didn't work, as people were loyal to specific brands
because they knew they would get the quality they were looking for.
As the economy shifted, though, and the quality of even brand name products changed, people
began to grow more open to private label brands.
Now, thanks in part to millennials making up a large portion of the shopping public,
people are less focused on which brand is best and are more focused on things like price
and environmental impact, meaning that private labels, generics, and unknown brands have
quickly become the most appealing options.
When people are buying their store brands, dollar stores are raking in a lot more profit.
Above all, the main way that dollar stores make money is that they offer a way for low-income
people to get the everyday items they need for an affordable price.
For this reason, the large majority of dollar stores are located in areas that see a lot
of "economic distress."
Unfortunately, dollar stores don't really help to fight economic distress — they cause
more of it.
According to Fast Company, dollar stores deliberately target the country's more economically vulnerable
communities.
Once they set up shop, they wipe out all competition in the form of grocery stores and independent
small businesses, making them the only choice when it comes to food and other necessities.
While the dollar store itself makes millions off these communities, the people in them
are left with no healthy food options and no locally owned businesses, resulting in
even less income for the already-stressed economic environment.
Dollar stores become the only game in town, and make money because they offer something
people think they can't get anywhere else.
Because of this, they are taking much more than people's dollars.
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