Making a Buck: How Do Dollar Stores Make Any Money?

Justin Sullivan/iStock via Getty Images
Justin Sullivan/iStock via Getty Images / Justin Sullivan/iStock via Getty Images

While the prices of everything from lattes to movie theater 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 raises 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 aren't always as generous as they seem. As How Stuff Works explains, 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 instance, is being sold for more than $.06 an ounce. The average U.S. price for milk in December 2018 was $3.27 per gallon [PDF], or less than $.03 an ounce.

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.

Of course, there are dollar store customers who know 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 Mashed, Dollar General intentionally sets up shop in neighborhoods where quick access to cheap, shelf-stable food is not just a convenience, but a necessity. 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. Some cities have even begun passing laws to limit the expansion of Dollar General and Dollar Tree to prevent them from becoming the primary food source for low-income families.

Even with tighter regulations, the retail strategy dollar stores have perfected will likely keep them a fixture of strip malls for years to come. Here are some more behind-the-scenes facts to demystify your dollar store experience.

[h/t How Stuff Works]