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Dollar stores are able to keep their prices so low, in part, because they sell so many private-label products.
Private-label products are made and sold exclusively for these stores, so they can be bought and sold for less.
Dollar stores are thriving right now. Dollar Tree, Dollar General, and Five Below all saw comparable sales increase in the third quarter of 2018.
Dollar stores sell food, clothing, beauty products, electronics, and, just about everything else. The stores are meant to provide a "treasure hunt" experience so that shoppers never know what kind of deals they'll find.
While dollar stores do often carry name brands for low prices, one of the biggest reasons dollar store prices are so low is their use of private-label products.
Private labels are used by everyone from Costco to Trader Joe's to sell products for less. Private brands give retailers a better handle on margins, and their unique offerings provide a hedge against competitors.
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Many private-label brands are heavily geared towards millennials and Gen-Z shoppers because millennials are generally less loyal to well-known brands. Instead, they focus more on cost and whether a product is healthy and good for the environment, David Garfield, head of the consumer products practice at consulting firm AlixPartners, told The Wall Street Journal in October.
Some retailers, such as Dollar General, make it obvious when a brand is private, like with its DG Home and DG Health lines. Meanwhile, Dollar Tree disguises its private-label products under unrecognizable names. When shopping at Dollar Tree, it's nearly impossible to tell which products are owned by the dollar-store giant.
Here's how dollar stores use private labels to help keep prices low:
Dollar General and Dollar Tree each use private labels to help keep prices low.
Some of Dollar General's brands include Clover Valley food ...
... DG Home ...
... DG Health ...
... and True Living.
Dollar Tree's brands aren't as obvious.
Some products, like Apple Bits and Fruit Rings, seem like they would be Dollar Tree's version of Apple Jacks and Fruit Loops. But the cereals are actually from Golden Brands, which does not appear to be owned by Dollar Tree.
But many of Dollar Tree's products actually are private-label products. For example, beauty products from Sassy + Chic are distributed by Greenbrier International Inc., which is a subsidiary of Dollar Tree.
Supreme Tradition spices are also distributed by Greenbrier International Inc.
At Dollar General, private-label products often cost half the price of the name-brand equivalent. For example, a 32oz. soap from Dial cost $6.50, and a similar 32oz. soap from Dollar General's DG Body line cost only $3.50.
At Dollar Tree, all products cost $1 or less, regardless of the brand. But the company saves money by selling so many private-label products.
Retailers are now "more willing to invest in 'store brands'" because the stigma of "generic" goods has lifted, Barclays analysts wrote in a 2017 note.
Consumers are increasingly apathetic to brands, creating what the Barclays analysts called a "sphere of despair" for food brands like Mondelez and Nestle and consumer conglomerates like Unilever and Procter & Gamble.
The unique offerings at dollar stores also provide a hedge against big competitors like Amazon.
Due to the cost of shipping, it's not economical for e-commerce companies to compete with dollar stores on items costing less than $10, which accounts for almost all private dollar-store brands.
By selling private brands instead of name brands, dollar stores like Dollar Tree and Dollar General are able to keep prices low.
