DOLLARS AND SENSE
The most common variety store chains in the United States tend to have "dollar" in their names, but that doesn't necessarily imply a certain cost or even mean that there are similar products in each store. We even found some items you shouldn't buy at a dollar store. We did some digging and found out some of the secrets behind "dollar stores," and why they've become such a large part of the U.S. consumer landscape.
DOLLAR STORES AREN'T ALWAYS CHEAPER
You still have to shop around. We compared dollar store prices to Walmart prices, and how well a shopper does depends on how closely they check the unit price. Sometimes, a dollar gets you less at Dollar Tree than it would somewhere else.
SOME ITEMS MAY COST MORE THAN $1
If you see "dollar" in the name, don't expect everything to cost a dollar. While Dollar Tree keeps all of their items at a dollar or below, Dollar General, 99 Cents Only, and Dollar-Tree-owned Family Dollar stores offer goods at multiple price points.
PRODUCTS MIGHT BE CHEAPER BECAUSE THEY'RE SMALLER
Sometimes it's more important to keep a product at the $1 price mark, even if that means shrinking the size of the container of toothpaste, shaving cream or other item the quantity of what you're selling, according to Clark Howard. We noticed shrinking containers when comparing Walmart to dollar stores, too. As inflation goes up, expect items to get even smaller.
YOU CAN FIND NAME BRANDS -- BUT THEY'RE NOT ALWAYS A BARGAIN
It doesn't help your budget if you grab a name-brand detergent or soap at a dollar store that is smaller than what you'd buy at a discount or grocery store, which may negatively impact your savings. However, if you like specific cleaning products or bathroom supplies, you can find them here.
THEY'RE CUTTING COSTS -- BUT STILL WANT YOU TO SPEND MORE
Unfortunately, these stores aren't passing the savings onto consumers. Dollar General said earlier this year that it wants to make its more than 30 percent gross margin even bigger. It's making stores smaller to prevent shoplifting, using anti-theft tags on all items, managing and expanding its own fleet of trucks, expanding its generic product line, sourcing from places cheaper than China, and most goods will remain below $5, they're looking to encourage impulse buying on goods with higher price points.
DOLLAR STORES BET AGAINST YOU
The loss of the middle class may have helped dollar stores, but financial analyst say those chains will need things to get worse if they really want to thrive. "What the dollar stores are betting on in a large way is that we are going to have a permanent underclass in America," Garrick Brown, director for retail research at the commercial real estate company Cushman & Wakefield, told Bloomberg. "It's based on the concept that the jobs went away, and the jobs are never coming back, and that things aren't going to get better in any of these places."
THEY FEED OFF OF MISERY
It's been noted before that the upswing in Americans on food stamps and the continued struggles of Millennials after the recession have helped dollar stores find footing. But with Pew Research noting that just 50 percent of U.S. wealth is held by middle-income households — compared to 61 percent in 1973 — a rash of retail closings and the decline of malls in middle-class areas has swept more people toward dollar stores.
THEY HAVE A TYPE OF SHOPPER IN MIND ...
Late last year, Dollar General CEO Todd Vasos told a Goldman Sachs retailing conference that his stores' average shopper is, typically, a woman living a two-income household, making $40,000 per year before taxes, and clinging to a stable job with no wage growth. He says that shopper's disposable income is around 2 percent, so $800 per year, and her shopping habits don't respond well to price changes of as little as a dime.
... AND THEY ACTIVELY SEEK OUT THAT TYPE
As CityLab noted, dollar stores tend to flourish in areas where residents are making below the median income and living at high rates of poverty. They also tend to pop up in areas where residents have lower levels of education, higher rates of smoking and obesity. Dollar stores are also more common in communities with higher crime rates.
EVEN WELL-OFF SHOPPERS HUNT FOR BARGAINS AT DOLLAR STORES
A few years back, The New York Times Magazine discovered that about 22 percent of dollar store shoppers make more than $70,000 a year. They're also the fastest-growing segment of shoppers for the stores, along with Millenials.
THERE ARE MORE DOLLAR STORES THAN WALMARTS AND COSTCOS
The two biggest dollar chains, Dollar Tree and Dollar General, have more stores combined than the six biggest U.S. retailers — Walmart, Kroger, Costco, Home Depot, CVS and Walgreens — put together, according to Forbes. If you put Macy's, Kohl's, Nordstrom, JCPenney, Dillard's, Saks/Lord & Taylor, Neiman Marcus, and Belk together, they'd be less than 15 percent of the total number of dollar stores.
THE STORES CAN GET MESSY
Walking into a dollar store in disarray, isn't a rarity, but that's by design. These stores run on minimal staff and they're built to move a lot of product quickly. If that product has to sit on floors or in boxes for a bit while a cashier handles the register, so be it.
WAGES ARE LOW AT MOST DOLLAR STORES
According to Glassdoor, the average cashier makes $8 an hour or less than $20,000 a year. Store managers and assistant managers make between $43,000 and $45,000 a year, while district managers get up to $70,000. If you're stocking shelves, it's $8 to $9 an hour. Dollar General wages fall along the same lines. An owner-operator doesn't have it much better, making little more than $52,000 a year.
IT'S A TWO-HORSE RACE ...
Dollar Tree (which also owns Family Dollar) has nearly 15,000 locations and amassed $22.25 billion in revenue last year. Its chief competitor, Dollar General, has 14,500 locations and made more than $23 billion. By comparison, a second-tier competitor like Five Below has only 625 locations.
… BUT THERE ARE PLENTY OF LITTLE GUYS
Aside from Five Below, there are chains as large as the nearly 400-store 99 Cents Only based out of California. However, your typical dollar store chain is about as small as the 10-store Real Deals chain in Central New York.
THEY'RE PRESSURING COMPETITORS BIG AND SMALL
The growth of Dollar Tree, Dollar General, and the other large chains has come at the expense of not only upmarket competitors, but smaller dollar stores. As the New York Times pointed out, dollar-store chains have done a fine job of pushing mom-and-pop operations out of the business through both their presence and their supply chains.
THEIR NUMBERS ARE GROWING
The number of dollar stores in the U.S. hit 30,000 in 2016. That's 25 percent higher than it was in 2011 and will likely grow to more than 34,000 by 2020.
THEY TEND TO CLUSTER
While dollar stores have proliferated across the country, the folks at CityLab point out that "they are concentrated in blue-collar, working-class states." The highest concentrations are found in Ohio and Indiana to the north, down through Kentucky and Tennessee through the South and into the Gulf states.
EVEN DOLLAR STORES STRUGGLE TO KEEP UP WITH AMAZON
Their numbers are growing, but dollar stores face the same struggles as many other retail stores in the current environment. Dollar Tree and Dollar General are benefitting from a shrinking middle class that is drifting into lower tiers, but they're also pressured by online marketplaces like Amazon. Even with their great deals, dollar stores feel the same pinch as other retailers when the economy softens.
WHOLESALERS AND DIRECT SUPPLIERS SAVE THEM MONEY
Independent dollar stores and small chains depend heavily on wholesalers with access to overproduced products or inexpensive imports. However, some of the larger chains have their own suppliers in place and deal with name-brand clients directly.
THEY MAKE MANY DOLLARS
Last year, Dollar Tree and Dollar General alone made nearly $50 billion in revenue. That's twice as much as Macy's, but only about half that of Kroger.
THEY'RE A BULK STORE IN REVERSE
They're picking up items in bulk and benefitting from the economics of scale, but dollar stores aren't always passing the bulk of those deals onto the consumer. That's evident from Dollar Tree's Direct to Business program, which lets businesses and charitable organizations pick up items at bulk prices, but doesn't charge them a warehouse fee like Costco or Sam's Club for the privilege. Meanwhile, they can break up cases and sell items for $1 in stores whether or not that's their until price in bulk.
THEY DON'T FRANCHISE
All Dollar Tree and Family Dollar stores are operated from their corporate headquarters in Virginia. Dollar General doesn't franchise either, but will let you sell Dollar General products online as an "affiliate" for a 5 percent commission.
THEY'RE HIGH MARGIN
Dollar stores maintain huge gross margins — larger than discount or supermarket chains — and actually make more money on every item they sell than their competitors. By selling smaller sizes and cheaper goods for a higher unit price, dollar stores are taking in more from consumers by parsing the pain into bite-sized chunks.
