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The Ins and Outs of Dollar Stores

Ever wonder how a dollar store is able to sell their merchandise at such low prices? It's really not as crazy as it seems.

dollar stores and how they work

Even down-economies boast some business success stories. Dollar stores are an example. These stores, which sell varied merchandise at bargain-basement prices, are thriving even as the national economy continues to struggle.

This makes sense: The national unemployment rate remains high, at 9.6 percent during September. Those people who haven’t lost jobs are worried that they’ll soon be out of work, too. A growing number of people, then, want to spend less money on household items.

This is the exact niche to which dollar stores cater.

Dollar stores make the vast majority of their sales to customers who earn either low or moderate yearly incomes. Consumers making up to $30,000 a year account for 45 percent of all dollar store sales. Those who make from $30,000 to $99,900 a year, in a bit of a surprise, account for an even larger percentage of dollar store sales, 47 percent.

To no one’s surprise, those with incomes of $100,000 or more shop at dollar stores the least: They account for just 8 percent of dollar store sales.

Fortunately for dollar store owners, there are an awful lot of U.S. consumers who fall into the low- to moderate-income categories. Maybe this is why new dollar stores are popping up across the country in record numbers. Dollar store retailers have added 8,500 new stores since 2001. That’s impressive. It’s especially so when you consider that retail juggernaut WalMart has only added 1,024 stores during the same period.

Overall, the number of dollar stores across the country has jumped from 13,151 in 2001 to 20,253 in 2009. For the math-challenged, that’s an increase of 54 percent.

How do dollar stores do it? How are they thriving when so many other retailers are barely surviving?

It starts, obviously, with price. Dollar stores do stock items that cost more than a single dollar bill. But everything they stock is cheap. That’s because the owners of these stores buy in bulk. They negotiate deals directly with the manufacturers. They can then offer their products to their customers at far lower prices than can their more upscale competitors.

Dollar stores are also blessed with low overhead costs and salaries. Workers at dollar stores don’t make much. They also handle several different jobs at one time. Most dollar store employees are cross-trained: This means that they can perform almost any job available at their stores. It’s a way to save money on labor costs.

Most dollar stores set up shop in the less-desirable areas of a city or town. This, again, provides significant savings to owners. Rents are cheaper in these parts of town.

Finally, dollar stores specialize in carrying generic or “off” brands of shampoos, make-up, snacks and toys. Often, these stores carry products that were originally developed for foreign markets. An unauthorized distributor then repackages these products and sells them to dollar stores. This is known as the “grey market.”

U.S. shoppers might be surprised to know that the dollar store concept has become a global one. It seems shoppers all around the world are interested in cheaper merchandise. In Australia and New Zealand, for example, shoppers can spend at what are known as Two-Dollar Shops. In Japan, they shop at the 100 Yen Shop. In Norway, dollar stores become Max20 shops. And in Kuwait, bargain hunters can peruse the items in the 100 Fils Shop.

It’s clear that dollar stores aren’t going anywhere. If you shop at one of these retailers, though, keep in mind a couple of safety tips: If you’re buying vitamins or medicine, make sure to look for an eight-digit drug identification number, natural product number or homeopathic medicine number on the products’ label or packaging.

Saving money is great, but you don’t want to get sick doing it.

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