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. This is how dollar stores really make their money.
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00:00Every year, dollar stores see higher and higher earnings, but how can a store that seems like
00:05it's giving things away turn itself into a multi-million dollar enterprise?
00:09The answer is simple.
00:11That dollar isn't always the great deal it appears to be.
00:14Here are their secrets.
00:15Whether times are good or bad, you can still count on people to flock to dollar stores
00:20because they have the one thing everyone loves convenience.
00:24Sales for Dollar General are always on the upswing, with the chain seeing an increase
00:28of 3.7 percent between 2017 and 2018, regardless of the state of the economy.
00:34Take it from Dollar General CEO Todd Vesos, who had this to say about their regular customers,
00:40"...we have seen no sign of trade-out or trade-up from our core customers.
00:45Even in a good economy, they are still looking for value and convenience."
00:49So basically, no matter how much money people have, they still want something that bigger
00:53grocery stores can't give them.
00:55Dollar stores are not just convenient because their items are cheaper, but also because
00:59there seems to be one on every corner.
01:01And that makes them perfect for a quick fill-in trip between your weekly grocery runs.
01:06These stores are also typically smaller than the ones in a big chain like Walmart, which
01:10means that you can usually get in and out with your emergency bag of dog food, a handful
01:14of snacks, or supplies for your kid's art project in just a couple of minutes.
01:19The fact that most people are onto this means dollar stores are always making money, even
01:24if customers buy just a few things.
01:26"...yard gloves, tomato seeds, fertilizer, hay pit seed jack outside of the puzzle, gardening!"
01:36It's common knowledge that the success of a business is largely based on its location.
01:41If you aren't in a place where you can offer something that the local community needs,
01:45you aren't going to have much of a customer base.
01:47This is why Dollar Tree and Dollar General are mostly located in areas where people with
01:52a lower income level reside, and where big-box stores aren't easily accessible.
01:57According to CNN Business, 75 percent of Dollar General stores are located in towns that have
02:02less than 20,000 people.
02:04The chain targets sparsely populated rural areas, where it can be the only game in town
02:09when it comes to buying food or other supplies.
02:11In most cases, the closest grocery store is more than 15 or 20 miles away, making the
02:16dollar store a much more convenient option.
02:19Dollar General also strives to put locations in areas that are known as food deserts.
02:25These areas, which aren't just limited to rural towns, but may also include underserved
02:29urban areas, are places in which fresh food is not readily available.
02:34To take advantage of this, dollar stores offer snacks and are even working to expand their
02:38food sections, giving people even more reason to shop there.
02:42More customers means more dollars, and those dollars soon add up to big bucks.
02:47It's no secret that a store that sells most items for $1 was made in the interest of
02:52appealing to customers who don't have a ton of money.
02:55These shoppers don't just want a better deal than they can find at other stores, they need
02:59one.
03:00Dollar stores capitalize on this need by opening stores in lower-income areas and presenting
03:05themselves as a cheaper and more convenient option.
03:08If you don't have to drive half an hour to get a full-size grocery store, you don't spend
03:12as much money on gas, which helps to save a lot of money in the long run.
03:16The savings only continue when you arrive at the store and find thousands of items apparently
03:21offered at a much lower price point than competitors.
03:23It's gonna be a savings stampede!
03:26Savings stampede!
03:29Before you start filling up your cart with all kinds of $1 items, there's something you
03:33should know.
03:34That dollar is not always as good a value as it seems.
03:38Stores like Dollar Tree and Dollar General count on the customer being distracted by
03:42the appearance of a discount and not taking the time to check the difference between the
03:46sizes and the quality of the items at their stores.
03:50Because of this, unsuspecting customers end up actually paying more for an item than they
03:54would have somewhere else, and it usually doesn't last nearly as long.
03:58In reality, it is grocery stores that offer the highest discounts, although they see lower
04:03earnings overall.
04:04For every dollar spent by a customer at Dollar Tree, the company makes a profit of 35 cents.
04:10Walmart, for example, makes only 24 cents per dollar.
04:14This is because the items at dollar stores cost less to manufacture, and the company
04:18isn't losing any money by keeping them priced at just a dollar.
04:22The number one best trick carried out by dollar stores is that they are actually giving you
04:27less for your money.
04:29You might think you found a great deal by buying a box of aluminum foil for $1, but
04:33check the length of the roll.
04:35Let's just take that as a single example, one of several compiled by HowStuffWorks.com.
04:41That $1 box of foil you buy at Dollar Tree is 15 feet long, but if you spend more at
04:47Walmart and get a larger box, it works out to over 18 feet per $1.
04:52The same applies to products throughout the store.
04:55As if this weren't bad enough, you should know that according to Macon Brock, one of
04:59the founders of Dollar Tree, dollar store owners are basically counting on people to
05:03not think so they don't notice what's going on behind the curtain.
05:07He wrote in his book,
05:08"...when a customer walked into our store, she could shut off her brain.
05:13She didn't have to think.
05:14She didn't have to calculate how much she was spending.
05:17All she had to do was count.
05:191, 2, 3, 4, 5, 6.
05:24I have six items, and I have six dollars.
05:27I can buy this."
05:30At a dollar store, you get what you pay for.
05:33While a dollar might be a good deal for some items, you can't expect something long-lasting
05:37and high-quality if you can pay for it with loose change.
05:40Whether it's Dollar General, Dollar Tree, or any other chain of dollar stores, one of
05:44the biggest ways that the business saves money is by selling items that are made of cheap,
05:49flimsy materials, and sometimes, that's downright dangerous.
05:54According to the Washington Post, children's toys are one of the worst things you can buy
05:57at a dollar store.
05:59Many are made with tiny pieces that come off and can be choked on, and they fall apart
06:04surprisingly quickly because they are made of parts that cost next to nothing to put
06:07together.
06:08Electronics and things like power strips are a bad idea, too.
06:12After one use, or 20, they could malfunction and ruin your devices because they weren't
06:18made with the proper materials and safety standards.
06:21Most people don't expect their dollar store purchases to last forever, and when one thing
06:25breaks, they just go back and get a replacement for another dollar, which means more money
06:30in the dollar store's pocket.
06:32Instead of buying a higher-quality item at another store for $5 once, they end up buying
06:36the same, cheaply made item ten times at the dollar store and spending twice as much without
06:42noticing, which is all part of the company's plan.
06:46If you've ever been inside a dollar store, you will have noticed that it's much smaller
06:50and more compact than a typical grocery store.
06:54This is no accident.
06:55According to Business Insider, a Dollar Tree store is usually small, with an average size
06:59of just 8,000 to 12,000 square feet.
07:03They say that's about one-eighteenth of the size of the average Walmart, so it's not just
07:07a small difference.
07:09The stores are designed this way so that you can easily go through the entire store in
07:13just a matter of minutes, making it more likely that you can find something you need, or want,
07:18without much searching.
07:19There's also a method to the way the aisles are arranged that affects what shoppers buy.
07:24Typically, seasonal items like Christmas decorations, party favors, or summery cups
07:29and pinwheels meet you as soon as you walk in the door, tempting you with the store's
07:33newest inventory right off the bat.
07:35The products that shoppers buy most frequently, such as food or children's toys, are placed
07:40in the back, meaning that you have to walk through the entire store and past all the
07:44other tempting deals to get to them.
07:46This setup has been proven to sell more products because people leave with a lot more than
07:51what they came in to get.
07:54Oh, when did you get this?
07:57One minute ago."
07:59The average, small, independent grocery store employs around 14 people, but the average
08:04Dollar Tree in Dollar General only employs eight.
08:08Dollar stores are typically smaller and don't see the huge rush that other retailers do
08:12so they can afford to get by with only a handful of workers per shift.
08:16As a result, they don't have as many employees to pay and provide insurance and benefits
08:21so they don't see as much money going out as other stores do.
08:25The downside to this is that most dollar stores are located in areas in which people are struggling
08:30economically.
08:31While the arrival of a new Walmart or Target in town could mean many more jobs for the
08:35locals, a new Dollar Tree really doesn't.
08:38So while the chain itself is saving money and raking in more and more of it, this money
08:42isn't being spread out into the community, which is one of the major complaints about
08:46this type of establishment.
08:51Business Insider called private labels a dollar store's, quote, secret weapon.
08:56Most big-box stores offer private label products, too, but this practice is especially lucrative
09:00for stores like Dollar General and Dollar Tree.
09:03A private label is usually one owned by the store, and they typically cost less to manufacture,
09:08and therefore appear on the shelves with a price that is less than half of what the name
09:12brands charge for the same item.
09:14At one point in time, this strategy didn't work, as people were loyal to specific brands
09:19because they knew they would get the quality they were looking for.
09:23As the economy shifted, though, and the quality of even brand name products changed, people
09:27began to grow more open to private label brands.
09:31Now thanks in part to millennials making up a large portion of the shopping public, people
09:35are less focused on which brand is best and are more focused on things like price and
09:39environmental impact, meaning that private labels, generics, and unknown brands have
09:44quickly become the most appealing options.
09:47When people are buying their store brands, dollar stores are raking in a lot more profit.
09:52Above all, the main way that dollar stores make money is that they offer a way for low-income
09:56people to get the everyday items they need for an affordable price.
10:00For this reason, the large majority of dollar stores are located in areas that see a lot
10:05of economic distress.
10:07Unfortunately, dollar stores don't really help to fight economic distress, they cost
10:11more of it.
10:13According to Fast Company, dollar stores deliberately target the country's more economically
10:17vulnerable communities.
10:19Once they set up shop, they wipe out all competition in the form of grocery stores and independent
10:24small businesses, making them the only choice when it comes to food and other necessities.
10:29While the dollar store itself makes millions off these communities, the people in them
10:33are left with no healthy food options and no locally owned businesses, resulting in
10:37even less income for the already stressed economic environment.
10:42Dollar stores become the only game in town and make more money because they offer something
10:46people think they can't get anywhere else.
10:49Because of this, they are taking much more than people's dollars.