An online dollar store sounds like a terrible business. This CEO wants to prove it's not
Online buyers might reasonably worry that cheap items are cheap for a reason, and won't buy if they can't see them in person to judge whether they'll fall apart after one use.
Plus, there's the fundamental question of business metrics: How is a store supposed to turn a profit if it's both selling and shipping items that retail for a few bucks?
David Yeom, a former VP at The Honest Company, thinks he's found an answer with his new startup: Hollar.
"You can absolutely make it a business," Yeom says.
After six months, the retail startup has already reached $1 million a month in online sales. Before it ran out of stock, Hollar was selling 1,000 copies a day of its most popular item, a unicorn version of the Glow Pets Light-Up Jumbo Pillow Pet. It doesn't sell cheap knock-offs, but real recognizable brands like Revlon lip gloss, Cheerios cereal, or Disney backpacks.
Yeom's making a big bet, though, that people love a good deal online as much as they do in the store.
Turning it into a business
The idea came from Yeom's own obsession with dollar stores. He's worked at retail companies like eBay, HauteLook, and most recently, The Honest Company. Yet, Yeom would still find himself shopping at the local Daiso, a Japanese low-cost chain, after lunch with his friend, Honest Company CEO Brian Lee.
During one of those lunches, Yeom realized there weren't many good online sources of cheap goods. And those that existed, like Wish, had problems with orders taking forever to arrive or being low-quality.
To turn a profit, the company set the order minimum at $10 so it doesn't lose money shipping a $2 plush toy. Customers who spend $25 or more get free shipping.
Those numbers might seem hard to hit if you're designed to sell low-priced goods, but Yeom says the average order size is actually $30. The largest order someone every placed was for 300 items, totaling $963.
It also avoids bulky goods, so it won't sell the 50 lb. bottle of laundry detergent, Yeom says. Nor will it sell perishable items like milk or bananas.
The other hurdle Hollar has to cross is winning customers' trust that the products on its site aren't scams or knockoffs, but the real thing.
Many of the items it receives are from closeout sales, so yes, that OPI nail polish is really OPI and that box of Oreos really are Oreos. Its beauty section sells brands from Revlon to L'Oréal. Its snack food section has items like Cheerios and Kraft Mac and Cheese. The $1 pregnancy test it sells is just as FDA-certified as the ones you can pick up for much more inside a Walgreens.
The dollar store of the future
Since Hollar launched in November, sales have grown every month. Most of its ordering happens on the mobile app, not its online site, and 80% of its orders come from outside of California and New York.
Yeom considers his main customers to be millennial mothers from middle America.
"We knew that moms would be our champion," Yeom said.
He also says that each order is "gross margin positive," meaning that the order prices cover the cost of goods and shipping. The company is still losing money overall, though, as it invests to build scale.
This year, Hollar plans to start manufacturing its own product line, in the way that The Honest Company developed its own line of non-toxic goods. Yeom's vision is to have more than 500 of its own white-label products in its store by the end of 2016.
"There's such a stigma with these companies," Yeom said. "Cheap doesn't mean it can't be good."