How Do Dollar Stores Make Money?

Dollar stores are known as "small box" stores, compared to the "big box" retailers like Walmart, and that's one reason they are popular- they are everywhere, they are convenient, and they are cheap. It's much easier to pop into a nearby dollar store, after parking close to the door, pick up a few things, and check out relatively quickly. You will probably also be impressed with the selection. Some only stock items priced at one dollar each, while others have a range of prices that are still fairly low. How can the company make money doing that? If you weren't in such a hurry, you might start to compare these items with those sold elsewhere.

According to analysis by The Guardian and The Washington Post, paying $1 for a 16-oz bottle of milk at a dollar store is the equivalent of paying $8 for a full gallon, which is more expensive than the fancy organic stuff at Whole Foods. Similarly, the $1 bag of raisins at the dollar store weighs only 4.5 ounces (128 grams), while a 72-ounce (2-kilogram) bag from a big-box store costs $10.50, or 52 percent less per ounce.

By shrinking package sizes, dollar stores can get away with charging way more per volume, which is one of the main strategies that dollar stores use to wring the most profit out of every sale. Just because you only paid $1 for that roll of aluminum foil doesn't mean that it's a good deal. That $1 roll is only 15 feet (4.5 meters) long, while Walmart sells a 75-foot (23-meter) roll for $4.06, the equivalent of more than 18 feet per dollar. (Of course, if finances are tight, maybe you'd rather pay $1 for 15 feet of foil rather than $4.06 for 75 feet.)

That's a part of what's known as the "poor tax." We know it would be cheaper to buy in bulk, but that's not possible if we don't have enough cash to do it. There's more to the economics involved in dollar stores, which you can read at How Stuff Works. -via Mental Floss

(Image credit: John Sposato)


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