A dollar store is a type of general store that limits its prices. It can sell anything from discounted household goods, party supplies to movie tickets. While the name suggests that nothing can be sold for over a dollar, some stores will make exceptions for certain products while keeping the vast majority of stock at a lower price.
Even though the prices of everything from lattes to movie tickets have inflated in recent years, dollar stores are somehow still around. It’s true that not every item sold by chains like Dollar General and Dollar Tree costs a dollar, but there are enough of them on the shelves to attract customers looking for good deals. That begs the question—if every other retailer seems to be raising prices, how do dollar stores keep making money?
The truth is that the cheap deals dollar stores advertise may not always be as generous as they seem. Many of the $1 products sold at these chains are actually less of a bargain than the more expensive—and larger—versions sold at grocery stores. A $1 16-oz bottle of milk at the dollar store, for example, is being sold for more than $.06 an ounce. The average U.S. price for milk in December 2018 was $3.27 per gallon, or less than $.03 an ounce.
Have it in mind that these tricks are even harder to spot with products like aluminum foil, which can be sold in 15-foot rolls for $1 in dollar stores and 75-foot rolls for $4 in big-box chains, but come in similarly sized boxes. By sizing-down products and using $1 price tags to apply the illusion of value to everything in their inventory, dollar stores are able to turn a profit that can be higher than stores like Walmart.
Indeed, there are dollar store customers who understand that spending a little more money for larger quantities will get them better value in the long run, but this isn’t feasible for everyone. When shoppers only have enough money to get them through the week or even the day, dollar stores are a tempting option.
That brings up another strategy these companies use to stay in business: targeting low-income communities. According to reports, Dollar General intentionally sets up shops in neighborhoods where quick access to cheap, shelf-stable food is not just a convenience, but a necessity.
Note that many of these communities are considered “food deserts,” or places that are isolated from supermarkets and other stores that sell fresh, nutritious food. In some cases, dollar stores help create food deserts by drawing customers away from local grocery stores and independent businesses until they’re the only game in town.
However, even with tighter regulations, the retail strategy dollar stores have perfected will likely keep them a fixture of strip malls for years to come. Even in modern America, it might seem like the economy is always fluctuating with uncertainties, as are things like the unemployment rate.
So, ideally, 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 (especially in the lower-income parts of town) making them perfect for a quick fill-in trip between weekly groceries runs. The fact that most people are on to this and cashing out steadily means dollar stores are always making money.
Smart Ways Dollar Stores Make Money
To generate revenue and make a profit, Dollar stores are known to charge a mark-up on the items they sell. These stores will more or less get inventory by purchasing large quantities of stock at wholesale prices. By buying these products at a deep discount, the store owners can afford to sell them for a dollar and still make a profit.
Some Dollar Stores keep their prices at $1 or less while others will make exceptions for higher ticket items. As a Dollar Store owner, if you choose to make certain items more than $1, it’s advisable you do so sparingly. Your base clientele will not appreciate having to hunt for prices when they’re in a dollar store.
Howbeit, Dollar stores may make up to $.80 profit on items they sell, though the average is about $.35 for each item. This means a dollar store would have to sell 200,000 items a year to make around $70,000 in profit.
According to 2012 reports, Dollar Tree captured 35 cents of profit for each dollar of revenue compared to 24.1 cents per dollar at Wal-Mart. Dollar-store shopping is a no-frills experience and that’s not an accident. By keeping stores small and employees at a minimum, dollar stores are able to convert a larger portion of sales into a profit.
The normal Dollar General store is 7,400 square feet (687 square meters) compared to 178,000 square feet (16,537 square meters) for the average Wal-Mart Supercenter. And even though dollar stores are packed floor to ceiling with items, the typical dollar store only carries 10,000 SKUs (individual item codes called “stock-keeping units”) while the average Wal-Mart carries closer to 90,000 SKUs.
Note that those 10,000 dollar-store items are chosen for maximum profit, emphasizing long shelf life, off brands, and small packaging. These stores also don’t need a lot of employees to run, again keeping overhead costs down considerably. The typical dollar store employs eight or nine people compared with 14 employees at a similarly sized independent grocery store.
Dollar stores make money because they offer something people think they can’t get anywhere else and because of this, they are taking much more than people’s dollars. To make your Dollar store more profitable, consider selling certain items at big losses to attract people into the store, so they have the opportunity to pick up other items at a much larger profit.
In addition, running promotions or contests can help to attract new clientele too. You can also consider branching out as a franchise or potentially opening more conventional convenience stores in addition to their original venture.