Dollar Tree is perhaps the ultimate bargain-basement shopping chain; everything really is just one dollar (or a fraction thereof). Dollar Tree emerged in 1986 from a series of five-and-dime stores operated by founder K.R. Perry. By 1995 they were big enough to go public on NASDAQ, where they still reside today under the ticker DLTR. Since their IPO, they've acquired five other companies, and now operate more than 3500 stores from coast to coast, including one a few blocks away from my house. They continue to make a tidy profit doing so, raking in $192 million in net income as of 2007.

Profit Margins from Marginal Profit

The perennial question about any dollar store is: How do they sell so cheaply, yet make so much money? While I'm not privy to the full details, not having worked there, we can easily make a few assumptions.

  • Workers: It's likely that Dollar Tree closely follows the Wal-Mart formula. For one, most of their workers are probably paid minimum wage, and only work part-time, minimizing the company's responsibility to provide various benefits.
  • Quantity: The mark of any superstore, buying in bulk. The main difference between Dollar Tree and most other superstores, in this matter, is that they don't stock very many prominent brands, nor have a great diversity thereof.
  • Overstock: Based on personal observations, I'm also willing to venture that Dollar Tree is primarily an overstock operation. Visiting the store in my neighborhood fairly regularly, I've seen many feet of shelving newly filled with the exact same item, which will gradually disappear until being replaced, restarting the cycle.
  • Global economics: If not overstock, and perhaps even if it is, you can bet anything non-food-related was sourced from cheap Asian manufacturers. This shows in the inconveniently-underpowered lighters, plain-but-pretty dishware, and kids' jewelry. (Yes, there have been lead paint recalls.) Oh well, you get what you pay for; and at this price, why not?

Inside the Aisles

The store in my neighborhood is nothing remarkable. Locationwise, it sits in the same building as a local chain supermarket, in a shopping plaza with the usual fast food, video rental, and nail-technician emporiums. Big parking lots, drab gray buildings, the usual.

Inside, you'll find a typical retail store design, lit by lines of cold fluorescents every few feet. It never looks completely tidy, but the aisles are decently categorized, the shelves are seldom very bare, and usually the right items are in the right places. The only brand names I recognized were in the snack and candy aisles and the drink fridges; everything else is generic, from soup to shampoo.

As for product quality, it's what you'd expect. Brand-name food is an excellent value, but don't buy a lot of anything strange until you've had some and are sure it doesn't taste stale. Disposable items and basic tool sets are similarly useful. Do not expect anything electronic or mechanical to work for long; I've bought a flashlight that worked exactly once, the day I bought it, and sometimes items don't seem to have ever worked. Oh, and the bungie cords are three feet long, don't stretch, and smell funny; but you wouldn't really trust your life, or that mower in your trunk, to dollar store equipment.

There are a few checkout lanes, but generally only one cashier is needed to handle the light traffic, and he or she is as cheerful as you'd expect from any retail worker. It's a quiet store; relax and enjoy the oldies Muzak as you pay for your things, and cast a cursory glance across the large selection of $1 Bibles and Bibles-on-CD, as well as other various Jesus paraphernalia.

But does it check out?

Dollar Tree is the store for the value-obsessed. I rely on it mainly as a steady source of off-brand, fully-loaded energy drinks, and big boxes of candy, plus the odd mug or screwdriver. Any fairly complex item is a waste even of your dollar, but the food savings are generally invaluable (exception: tiny bags of beef jerky; rule: 3L bottles of Faygo soda), and the other sundries will get you through until you splurge on brands of more repute. Feel free to pick through Dollar Tree for odds and ends and treats, as a supplement to your regular retail habitats. As their website says, It's all about the hunt!

Sources Dollar Tree homepage and direct-order site Investor relations, company history, etc.

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