If You’ve Ever Wondered How Dollar Tree Keeps Its Prices So Low — We Got Some Answers
This story was originally published in November 2022.
Of all the terrible news stories to make headlines this year, the one that hit hardest came when Dollar Tree announced they’d be raising the price on every item to $1.25 after years of keeping it a buck. Sure, it might not seem like a big deal in the grand scheme of things, but when you’re buying 20 or 30 items a week, it adds up.
Despite the recent change in price, Dollar Tree and Family Dollar, which are both owned by the same company, have managed to stay afloat with their original business model through tough economic times. Regardless of the extra 25 cents, Dollar Tree is still the first place many people think of when stocking up on groceries when money is tight.
But if you’ve ever wondered how Dollar Tree gets the kind of product it does, or if you’ve ever worried about how much money you’re actually saving, we decided to break down the process of how Dollar Tree acquires and sells its inventory, including the story behind how they’re able to provide name brand products at bargain bin prices.
The first official Dollar Tree store opened at South Carolina’s Jessamine Mall in 1989 after multiple rebrandings that began with K&K 5&10 in 1953. By 1991, the Dollar Tree corporation sold the remaining K&K stores, refocusing instead on opening as many Dollar Trees as possible, especially as dollar stores gained a reputation for being the “hottest new shopping concept in America,” according to a Sun News article from 1989.
The rest, as we now know, was history. Stores like Dollar Tree, Dollar General, and Family Dollar continue to thrive with American consumers because knowing you’ll only be paying a dollar for each item you buy has become more of a priority to millions of families. And, much like the seasonal Spirit Halloween stores, Dollar Tree is one of the only brick-and-mortar retail spaces left where people actually want to go to the store.
Dollar stores only grew in popularity throughout the 90s and early aughts, but the low-end retail chain really took off after the housing crisis of 2008. Now, families who once considered themselves financially secure, even affluent, found themselves hyper-conscious of every penny they spent, leading them to visit Dollar Tree more frequently than ever before.
A 2011 New York Times Magazine profile called “The Dollar-Store Economy” breaks down this very specific supply chain right down to where the items are placed within the actual stores. Walking into Dollar Tree might seem like a free-for-all treasure hunt and, to a certain extent, it absolutely is. But it is scientifically designed to appeal to a biological need for hunting and gathering, something that exists at the core of all in-store retail shopping.
No, seriously. Even the Dollar Tree executives talk about it like some kind of sociological study. In fact, a sociology professor at Brooklyn College named Sharon Zuskin was featured in the profile, saying, “This bare-bones aesthetic puts across the idea that there is nothing between you the consumer and the goods that you desire.”
She continued, “You are a bargain hunter, and it’s not like a bazaar or open-market situation in other regions of the world. It doesn’t require personal haggling between the shopkeeper and the shoppers. Right? The price is set, and it’s there for the taking.”
Executives at companies like Dollar Tree would most likely agree. The NYT Magazine profile also follows a “dollar-store fixer” named Bob Hamilton who guides readers through one of Dollar Tree’s 15,000+ locations, breaking down exactly where items should be placed, how they should be arranged, and the optimal layout ensuring customers pass by as much product as possible.
Employing psychological cues while keeping overhead low with a limited number of employees and passionate managers in “C+, B” locations are the keys to success. Without these elements, the work done by dedicated buyers and merchandising experts who track down discounted merchandise in bulk would be for naught. As long as the costs stay low, so can the prices.
Many successful dollar store chains hire store designers to “planogram” each location, which is just a fancy word for putting stuff where it needs to be. For instance, the profile points out how “toys, wrapping paper, and gift cards…are laid out in a logical sequence that has been revealed by elaborate customer research and designed with precision.”
Although it might seem like it, nothing you see at a Dollar Tree is an accident. The clutter is part of the appeal, even if items are intentionally grouped together to create a psychological chain reaction where buying one item leads you to buy the ones next to it. Need batteries? There’s probably going to be something nearby that uses those batteries. Want to get some apple juice? Look behind you and you might just see some plastic cups to pour it into.
Over time, chains like Dollar Tree have become even more hyperfocused on, no pun intended, product placement. “People buy at eye level,” Hamilton says at one point, and he isn’t wrong. It’s a common retail technique that Dollar Tree takes to the next level. Everything from color to size to texture is taken into account to minimize the potential of a customer missing out on a product they don’t even know they want yet.
Dollar Tree locations also know how popular they are within immigrant communities and intentionally place themselves next to big box stores frequented by those communities. For Wally Lee, director of marketing and technology at a warehouse supplier called JC Sales, location is a no-brainer: “Right next to a Wal-Mart or Target.”
Once a location is decided upon, Dollar Store franchisees are encouraged to find a space between 8,000 and 10,000 square feet. Anything less may be too small, and anything more may be too big. Lee calls this sweet spot “the most optimally profitable among all our customers.” Even with the proper space, location, and layout, and because Dollar Tree still generates most of its revenue from in-store shopping, every store needs the best and most qualified manager possible.
“If it is a Spanish market, then it has to be a Spanish manager to speak to them to see what their needs are,” Lee explains. “If you don’t do that, you’ll never beat anybody else.” Not only is there a need to bridge any potential cultural divides, but dollar stores also need a manager who’s willing to experiment with layout, track sales to decide on better merchandise, and just generally be someone who’s constantly thinking about how to make as much money as possible for as little money as possible.
In terms of merchandise acquisition, dollar stores tend to work with suppliers by purchasing their products in bulk, making it all the more important for stores to know exactly what their bestsellers are so they can regularly restock them. Dollar Tree also launched an in-house brand similar to those seen at Wal-Mart, Safeway, and most other big box stores, although they’ve gotten some flack on certain offerings that have been deemed unsafe.
However, when it comes to name-brand products, it’s a different story entirely. Although dollar stores are and have always been a place to find some great deals, don’t be fooled when seeing your favorite cereals and snack foods at a fraction of the price.
Take Froot Loops, for instance. You can buy a 3.1-ounce bag of them for $1.25 at Dollar Tree, but Wal-Mart’s online store sells a 28-ounce box for just $5.48. That comes out to around 19.6 cents per ounce compared to Dollar Tree’s 40.3 cents an ounce, more than double Wal-Mart’s price.
As far as books, movies, music, and clothes, dollar stores tend to purchase excess stock from other suppliers that have either not performed well at a certain price point or have become defunct as a result of a newer, better product. Dollar Tree’s book section, in particular, is comprised of publications that underperform at full-priced booksellers, with publishers and suppliers just wanting to get the excess copies off their hands.
Walking into a big-name dollar store with all of this information, it’s hard not to notice the trends. Chaos may seem to reign as bargain hunters rifle through piles of merchandise that really embodies the old adage, “one man’s trash is another man’s treasure.” Just remember, none of it is an accident.