Dollar Store Store Business Overview

Dollar stores sell everyday items at low prices, typically ranging from $1 to $10. These retail stores stock a variety of products, including household supplies, groceries, personal care items, seasonal decorations, and basic clothing. They serve neighborhoods across the United States, from urban centers to rural communities.

The industry includes several business models:

• Independent Single Store: A standalone store owned and operated by an individual business owner. These stores often focus on specific neighborhood needs and can adjust their inventory based on local demand.
• Small Chain Operation: Multiple stores under single ownership, usually within a specific region or state. This model allows owners to build supplier relationships and distribute inventory across locations.
• Franchise Operation: Business owners who partner with established dollar store brands. The franchisee receives brand recognition, proven business systems, and supplier connections while maintaining some independence in operations.
• Wholesale Dollar Store: These stores buy products in bulk from manufacturers and distributors and then sell them to other dollar stores or directly to consumers. They often require larger storage facilities and focus on volume sales.
• Specialized Dollar Store: Stores concentrating on specific product categories, such as party supplies, seasonal items, or grocery products. These stores might set higher prices for certain items while maintaining the overall discount store concept.

Each model serves different market segments and requires varying investment and management expertise levels. The choice between these models often depends on factors such as available capital, desired level of independence, and local market conditions.

Industry Statistics

Dollar stores operate in the Discount Variety Retail industry (NAICS 452319). These stores sell general merchandise at discounted prices, including groceries, household products, and personal items. The industry began during the Great Depression when the first dollar store opened in 1935. The industry expanded significantly during economic downturns, particularly in the 1980s and following the 2008 recession.

Market Size: Annual sales in the discount variety store industry reach $124.9 billion across 40,240 stores throughout the United States. The industry maintains a strong presence in both urban and rural areas, with stores located in shopping centers, standalone buildings, and neighborhood retail districts.

Dollar General and Dollar Tree are the largest competitors in this space.

Market Trends: The industry continues to show steady growth, with a projected annual growth of 4.7%. This growth stems from:

• Increasing consumer demand for budget-friendly shopping options
• Expansion into new product categories, including fresh groceries
• Growing presence in underserved rural markets
• Adaptation to changing consumer preferences through improved store layouts
• Introduction of multiple price points beyond the traditional $1 limit

How much does it cost to start a Dollar Store?

The total cost of starting a dollar discount store can vary significantly depending on various factors such as location, size of the store, and the amount of inventory you start with. On average, you could expect the total startup costs to range between $50,000 and $235,000. This estimate includes everything from leasing and renovating your store location to purchasing initial inventory and advertising your grand opening.

Here’s a rough breakdown of the costs:

• Franchise Cost: While you can open an independent dollar store, if you want to operate under a name brand like Dollar Tree, Family Dollar, etc., there will be a franchise fee that can range from $10k – $30k, plus royalties (a percentage paid based on sales) depending on the brand you work with. Unfortunately, you can’t get a Dollar General franchise, as Dollar General stores are all corporate-owned.
• Lease/Rent: Depending on your location, leasing a retail space could cost between $10 and $50 per square foot per year.
• Store Build-Out/Renovations: These costs can vary widely depending on the current condition of the leased space and the extent of the renovations needed. An estimate would be between $10,000 and $50,000.
• Initial Inventory: You will likely need to invest between $20,000 and $50,000 in inventory to adequately stock your store at the beginning.
• Equipment: This includes shelving, cash registers or a POS system, shopping carts or baskets, signage, and more. Expect to spend about $10,000 to $20,000 on equipment.
• Permits and Licenses: These costs can vary depending on your location, but you might expect to spend a few hundred to a few thousand dollars on necessary permits and licenses.
• Advertising and Marketing: Budget for marketing costs, especially for your grand opening. A ballpark figure might be between $1,000 and $5,000.
• Operating Expenses: A buffer of at least three to six months’ operating expenses is essential. This includes rent, utilities, employee wages, insurance, and more. Depending on your costs, this could range from $10,000 to $30,000.

Remember, these are rough estimates, and the actual costs can vary, so be sure to conduct your own research and create a detailed budget before starting your dollar store. Also, it’s always good to overestimate costs a bit to account for unexpected expenses.

How profitable are dollar stores?

Dollar stores earn money by selling high volumes of products at low prices. The industry average profit margin is 3.8%, which means that for every $100 in sales, the store keeps $3.80 after all expenses. Using real numbers from an average store, let’s break down how money typically flows through a dollar store business.

A typical new dollar store or one in a rural area might generate $500,000 in sales during its first year. From these sales, the store operates on a gross profit margin of 35%, which means $175,000 remains after paying suppliers for products ($500,000 × 35% = $175,000). This money must cover all the operating costs of running the business.

The main operating expenses typically add up to around $125,000 per year. This includes rent and utilities for the store space, employee wages, business insurance, store supplies, and marketing costs. After subtracting these operating expenses from the gross profit ($175,000 – $125,000), the store owner might expect to earn about $50,000 in net profit during the first year.

Several factors influence how much profit a store can make. Location plays a major role – a store in a busy shopping area might attract more customers than one in a quiet neighborhood. Local competition affects prices and sales. Good management practices make a big difference, especially in areas like:

• Negotiating better prices with suppliers
• Reducing waste and theft
• Training employees well
• Managing inventory carefully
• Choosing products that sell quickly

While these numbers represent a typical new store, actual results can vary significantly. Some stores perform better, while others might take time to reach these levels. Before opening a store, creating a detailed financial plan based on local market research will provide more accurate predictions for your specific situation.

The profit margin of 3.8% shows that dollar stores run on small margins and depend on selling large volumes of products. Success often comes from careful attention to expenses and smart inventory management rather than high prices or large profit margins on individual items.

Resources:
IBISWorld
National Retail Federation
Retail Merchants Association