WEBVTT 00:00:00.000 --> 00:00:01.840 You know, it's funny, usually when you watch 00:00:01.840 --> 00:00:06.700 a magic trick, you're fully aware that you're 00:00:06.700 --> 00:00:09.220 being fooled. Oh yeah, definitely. You're expecting. 00:00:09.320 --> 00:00:11.699 Exactly. You watch the magician's right hand 00:00:11.699 --> 00:00:13.900 doing all that theatrical waving with the wand, 00:00:13.919 --> 00:00:16.800 and you just completely ignore the left hand 00:00:16.800 --> 00:00:19.000 casually slipping the coin into their pocket. 00:00:19.120 --> 00:00:21.739 I mean, it's classic misdirection. Right, it's 00:00:21.739 --> 00:00:23.579 the grand illusion. You pay for the spectacle, 00:00:23.780 --> 00:00:26.100 you inherently understand the rules of the game, 00:00:26.420 --> 00:00:29.339 and you willingly suspend your disbelief to just... 00:00:29.480 --> 00:00:33.100 You know, enjoy the show. Yeah. But, um, what 00:00:33.100 --> 00:00:35.439 if I told you that you willingly walk into this 00:00:35.439 --> 00:00:38.439 exact same kind of grand illusion all the time, 00:00:38.719 --> 00:00:41.320 completely unaware? Really? All the time? All 00:00:41.320 --> 00:00:43.119 the time. Every time you step out of your car 00:00:43.119 --> 00:00:46.140 to grab, like, some cheap party supplies or a 00:00:46.140 --> 00:00:48.159 heavily discounted greeting card or just a quick 00:00:48.159 --> 00:00:50.460 snack, you are stepping onto the stage. Oh, I 00:00:50.460 --> 00:00:52.060 see where you're going with this. Yeah, I'm talking 00:00:52.060 --> 00:00:54.060 about the variety store. You know, the dollar 00:00:54.060 --> 00:00:56.859 store, the pound shop, the five and dime. The 00:00:56.859 --> 00:01:01.039 absolute titans of modern retail. Exactly. So 00:01:01.039 --> 00:01:03.280 welcome to the Deep Dive. Today, our mission 00:01:03.280 --> 00:01:06.859 is to explore how these seemingly simple, ultra 00:01:06.859 --> 00:01:12.219 cheap stores morphed into this massive $77 billion 00:01:12.219 --> 00:01:14.560 industry. Which is just a staggering number when 00:01:14.560 --> 00:01:16.540 you think about it. It really is. I mean, an 00:01:16.540 --> 00:01:18.640 industry that, believe it or not, actually has 00:01:18.640 --> 00:01:21.400 more locations than drug stores and generates 00:01:21.400 --> 00:01:24.120 higher annual sales than massive traditional 00:01:24.120 --> 00:01:27.560 giants like Macy's. So, OK, let's unpack this. 00:01:27.780 --> 00:01:29.879 Yeah, and to set the table properly here, we 00:01:29.879 --> 00:01:32.489 really need to clearly define the of what we're 00:01:32.489 --> 00:01:34.329 actually looking at in these sources. Right, 00:01:34.530 --> 00:01:36.469 because not all discount stores are the same. 00:01:36.709 --> 00:01:39.439 Exactly. A variety store is specifically a retail 00:01:39.439 --> 00:01:42.180 environment selling general merchandise. So that 00:01:42.180 --> 00:01:45.719 encompasses apparel, toys, basic hardware, dry 00:01:45.719 --> 00:01:48.519 goods, and, well, an increasingly large selection 00:01:48.519 --> 00:01:50.060 of groceries. Which we will definitely get into 00:01:50.060 --> 00:01:52.680 later. Oh, for sure. But the absolute key differentiator 00:01:52.680 --> 00:01:55.099 here, the engine of the whole operation, really, 00:01:55.379 --> 00:01:57.379 is that they sell these goods at discounted and 00:01:57.379 --> 00:02:01.040 very rigid fixed price points. So like the classic, 00:02:01.040 --> 00:02:03.040 you know, five and 10 cents back in the day. 00:02:03.200 --> 00:02:05.060 Right. Historically, it was five and 10 cents. 00:02:05.519 --> 00:02:08.330 More recently, it's a single dollar or a single 00:02:08.330 --> 00:02:11.409 pound and we are deliberately separating these 00:02:11.409 --> 00:02:14.310 from general merchandise super stores like Target 00:02:14.310 --> 00:02:17.090 or warehouse clubs like Costco. Because they 00:02:17.090 --> 00:02:18.830 just operate differently right? Yeah totally 00:02:18.830 --> 00:02:21.129 different. Those giants operate on completely 00:02:21.129 --> 00:02:24.150 different fundamental economic principles. Okay 00:02:24.150 --> 00:02:27.150 so before we figure out how these stores completely 00:02:27.150 --> 00:02:29.930 took over the modern retail landscape we really 00:02:29.930 --> 00:02:32.069 have to understand the foundational mechanics 00:02:32.069 --> 00:02:33.849 of their survival. Which is honestly the most 00:02:33.849 --> 00:02:37.639 fascinating part. Right. Because how exactly 00:02:37.639 --> 00:02:40.560 does a massive corporation make billions of dollars 00:02:40.560 --> 00:02:43.580 in revenue when the things they are selling literally 00:02:43.580 --> 00:02:46.939 cost pocket change? I mean, the math feels like 00:02:46.939 --> 00:02:49.280 it shouldn't work. I'm assuming there's like 00:02:49.280 --> 00:02:51.900 a heavy reliance on the classic volume play. 00:02:52.039 --> 00:02:54.439 Oh, absolutely. The volume play is the bedrock. 00:02:54.860 --> 00:02:58.659 You are buying and selling vast, almost unfathomable 00:02:58.659 --> 00:03:01.400 amounts of goods at heavily discounted prices. 00:03:01.580 --> 00:03:04.219 Like mountains of plastic combs and stuff. Exactly. 00:03:04.539 --> 00:03:07.000 A store might only make a microscopic fraction 00:03:07.000 --> 00:03:10.419 of a penny in actual profit margin on each individual 00:03:10.419 --> 00:03:13.520 plastic comb or say a pack of batteries. Just 00:03:13.520 --> 00:03:16.039 a fraction of a penny. Just a fraction. But you 00:03:16.039 --> 00:03:19.139 multiply that fraction of a penny by millions 00:03:19.139 --> 00:03:21.680 of daily transactions across thousands of stores 00:03:21.680 --> 00:03:24.439 globally, and suddenly you have a multi -billion 00:03:24.439 --> 00:03:27.419 dollar enterprise. But sheer volume alone can't 00:03:27.419 --> 00:03:30.039 be enough to sustain a massive corporate infrastructure, 00:03:30.259 --> 00:03:32.740 right? I mean especially when supply chain costs 00:03:32.740 --> 00:03:35.460 fluctuate. This is where my magician analogy 00:03:35.460 --> 00:03:37.699 comes back into play. Let's hear it. Okay, so 00:03:37.699 --> 00:03:39.879 you walk into a dollar store and you see a sturdy 00:03:39.879 --> 00:03:43.000 kitchen spatula for a dollar. Your brain instantly 00:03:43.000 --> 00:03:45.719 registers like, wow, what a steal. A spatula 00:03:45.719 --> 00:03:47.780 is usually four or five bucks. Right. You feel 00:03:47.780 --> 00:03:50.419 like you just won the lottery. Exactly. But you 00:03:50.419 --> 00:03:54.000 are so completely distracted by the amazing deal 00:03:54.000 --> 00:03:57.099 on that spatula that you toss a tiny travel size 00:03:57.099 --> 00:04:00.930 bottle of generic shampoo into your basket. also 00:04:00.930 --> 00:04:02.770 for a dollar. And you don't even realize you 00:04:02.770 --> 00:04:05.189 just severely overpaid for that shampoo based 00:04:05.189 --> 00:04:08.870 on its volume. Yes. It is brilliant retail misdirection. 00:04:09.150 --> 00:04:11.370 What's fascinating here is how effectively this 00:04:11.370 --> 00:04:14.750 taps into human psychology. The consumer's brain 00:04:14.750 --> 00:04:17.790 basically shuts off its usual rigorous price 00:04:17.790 --> 00:04:20.889 checking mechanism the exact moment they cross 00:04:20.889 --> 00:04:23.329 the threshold of a designated discount store. 00:04:23.730 --> 00:04:26.089 Wow. So we just stop thinking critically. Pretty 00:04:26.089 --> 00:04:29.470 much. retailers purposely price certain items 00:04:29.470 --> 00:04:32.470 higher than a standard grocery store would, specifically 00:04:32.470 --> 00:04:34.850 to capitalize on this psychological blind spot. 00:04:34.949 --> 00:04:38.389 That is wild. Yeah, because you see heavy, legitimate 00:04:38.389 --> 00:04:42.870 discounts on anchor items in the store. Your 00:04:42.870 --> 00:04:45.129 brain falsely assumes everything in your basket 00:04:45.129 --> 00:04:47.829 must be an equal bargain. Man, that is legitimately 00:04:47.829 --> 00:04:50.290 terrifying. It's like this cognitive vulnerability 00:04:50.290 --> 00:04:52.750 that they have completely monetized. That's exactly 00:04:52.750 --> 00:04:55.870 what it is. If I'm running one of these stores 00:04:55.870 --> 00:04:59.350 and I am fundamentally forced to sell everything 00:04:59.350 --> 00:05:02.490 for a single rigid dollar, I mean, I can't just 00:05:02.490 --> 00:05:04.569 call up a premium brand and bully them into taking 00:05:04.569 --> 00:05:06.750 a 90 % pay cut, right? No, definitely not. So 00:05:06.750 --> 00:05:08.930 I have to fundamentally alter the product itself. 00:05:08.990 --> 00:05:10.730 Yeah, you have to engineer the product backward 00:05:10.730 --> 00:05:13.389 from the price tag. Shrinkflation is a massive 00:05:13.389 --> 00:05:16.490 tactic here. Oh, shrinkflation. Right. You are 00:05:16.490 --> 00:05:19.389 not getting the standard family size bottle of 00:05:19.389 --> 00:05:23.259 body wash. The manufacturer will actually retool 00:05:23.259 --> 00:05:26.660 their factory line to produce a smaller unit 00:05:26.660 --> 00:05:29.920 size specifically manufactured for that dollar 00:05:29.920 --> 00:05:32.560 store contract. Oh, wow. So they make a special 00:05:32.560 --> 00:05:35.819 tiny version just for them. Exactly. So the next 00:05:35.819 --> 00:05:38.500 time you, the listener, pick up your favorite 00:05:38.500 --> 00:05:41.600 brand name deodorant at a variety store, look 00:05:41.600 --> 00:05:44.699 closely at the net weight. You are paying a dollar, 00:05:45.040 --> 00:05:48.180 but you might be getting like half the product 00:05:48.180 --> 00:05:50.639 you would get at a local pharmacy. Meaning your 00:05:50.639 --> 00:05:52.839 cost per ounce is actually significantly higher. 00:05:52.939 --> 00:05:55.420 Way higher. You think you're getting a deal on 00:05:55.420 --> 00:05:57.420 a brand name, but you're actually paying a premium 00:05:57.420 --> 00:05:59.860 for the illusion of a deal. Right. And if they 00:05:59.860 --> 00:06:01.639 aren't shrinking the package, they're swapping 00:06:01.639 --> 00:06:05.180 out the materials, relying on like generic brands 00:06:05.180 --> 00:06:07.220 or private labels that use cheaper plastics, 00:06:07.420 --> 00:06:10.100 cheaper textiles, or just lower cost chemical 00:06:10.100 --> 00:06:12.060 formulations. Yep. And then, of course, you have 00:06:12.060 --> 00:06:14.579 to factor in the gray market. OK, wait. Let's 00:06:14.579 --> 00:06:16.379 define the gray market for a second because it 00:06:16.379 --> 00:06:18.600 sounds super illicit. It does sound like a cartel 00:06:18.600 --> 00:06:21.170 thing. Yeah. But it's actually just a massive 00:06:21.170 --> 00:06:23.389 loophole in global distribution, isn't it? It 00:06:23.389 --> 00:06:25.990 is. It's completely legal. But it operates outside 00:06:25.990 --> 00:06:28.430 of brands' intended distribution channels. Yeah. 00:06:28.850 --> 00:06:32.350 Let's say a major toy manufacturer overproduces 00:06:32.350 --> 00:06:36.230 100 ,000 action figures intended for the European 00:06:36.230 --> 00:06:38.850 market. OK. And they don't sell. Right. They 00:06:38.850 --> 00:06:42.029 flop. So Liquidator buys that massive surplus 00:06:42.029 --> 00:06:44.910 for absolute pennies on the dollar and redirects 00:06:44.910 --> 00:06:46.949 those shipping containers to a U .S. discount 00:06:46.949 --> 00:06:49.589 chain. Oh, I see. The brand never intended for 00:06:49.589 --> 00:06:51.709 their premium toy to be sold in a discount bin 00:06:51.709 --> 00:06:54.250 in Ohio, but because the Liquidator bought them 00:06:54.250 --> 00:06:57.610 legally, the dollar store can stock them. They 00:06:57.610 --> 00:07:00.009 act as a vital release valve for the global supply 00:07:00.009 --> 00:07:03.100 chain's mistakes. So they're basically the ultimate 00:07:03.100 --> 00:07:05.259 buyers of Last Resort. Exactly. And it's not 00:07:05.259 --> 00:07:07.259 just plastic toys either. There's this fascinating 00:07:07.259 --> 00:07:10.120 regional dollar store in the Syracuse, New York 00:07:10.120 --> 00:07:13.019 area called Real Deals. Oh, yeah. Real Deals. 00:07:13.139 --> 00:07:15.920 Yeah. They apply this exact same buyer of Last 00:07:15.920 --> 00:07:18.920 Resort logic, but to surplus and out -of -date 00:07:18.920 --> 00:07:22.240 food. Which is wild. Real Deals operates almost 00:07:22.240 --> 00:07:25.319 entirely on surplus groceries. And looking at 00:07:25.319 --> 00:07:29.100 how they operate... reveals a massive legal divergence 00:07:29.100 --> 00:07:31.480 globally when you check the sources. Really? 00:07:31.660 --> 00:07:34.680 How so? Well, in the United States, it is generally 00:07:34.680 --> 00:07:37.100 perfectly legal to sell most items completely 00:07:37.100 --> 00:07:39.839 regardless of their printed sell -by date. Wait. 00:07:40.120 --> 00:07:42.459 Really? Just totally ignore the date? Pretty 00:07:42.459 --> 00:07:45.100 much. The FDA generally views those dates as 00:07:45.100 --> 00:07:48.319 indicators of peak freshness, not strict safety 00:07:48.319 --> 00:07:51.180 deadlines, with a few exceptions for certain 00:07:51.180 --> 00:07:53.680 perishables, of course. OK, so a box of cereal 00:07:53.680 --> 00:07:56.519 or like a can of soup that is technically past 00:07:56.519 --> 00:07:59.300 its prime is perfectly legal to put on the shelf, 00:07:59.680 --> 00:08:01.800 slap a massive discount sticker on it, and just 00:08:01.800 --> 00:08:04.339 sell to a consumer. Exactly. The U .S. regulatory 00:08:04.339 --> 00:08:06.839 environment allows it, which provides this massive 00:08:06.839 --> 00:08:09.480 pipeline of ultra -cheap inventory for discount 00:08:09.480 --> 00:08:11.370 stores. That makes sense. Yeah, food distributors 00:08:11.370 --> 00:08:13.050 who are about to take a total financial loss 00:08:13.050 --> 00:08:15.490 on expiring warehouse goods can just offload 00:08:15.490 --> 00:08:17.089 them to these stores. Right. But if you look 00:08:17.089 --> 00:08:20.170 at the United Kingdom, the legal landscape is 00:08:20.170 --> 00:08:22.290 entirely different. Oh, they don't allow that. 00:08:22.629 --> 00:08:25.529 No, the Food Standards Agency over there makes 00:08:25.529 --> 00:08:29.129 selling goods after their use -by date strictly 00:08:29.129 --> 00:08:32.350 illegal. Wow, strictly illegal. That's a huge 00:08:32.350 --> 00:08:35.110 difference. It is. That fundamental difference 00:08:35.110 --> 00:08:37.889 in regulation totally alters the mechanics of 00:08:37.889 --> 00:08:40.870 what kind of surplus stock these stores can utilize 00:08:40.870 --> 00:08:43.950 to maintain those ultra -low price points, depending 00:08:43.950 --> 00:08:47.149 on the country. This entire model, I mean, the 00:08:47.149 --> 00:08:49.690 psychological pricing, the rigid backward engineering 00:08:49.690 --> 00:08:52.710 of package sizes, the ruthless scavenging of 00:08:52.710 --> 00:08:55.409 global supply chains, it all feels so calculated. 00:08:55.570 --> 00:08:57.450 It's a machine. It really is. You'd assume it 00:08:57.450 --> 00:08:59.590 was cooked up by a modern algorithm in Silicon 00:08:59.590 --> 00:09:01.649 Valley or something. But this is the foundational 00:09:01.649 --> 00:09:04.210 DNA of modern retail, isn't it? Oh, yeah. It 00:09:04.210 --> 00:09:06.789 goes back well over a century. The true pioneer 00:09:06.789 --> 00:09:09.590 of this model was Frank Winfield Woolworth. Right, 00:09:09.750 --> 00:09:12.870 Woolworth's. Yeah. Back in the late 1870s, he 00:09:12.870 --> 00:09:14.929 noticed the localized success of these early 00:09:14.929 --> 00:09:17.389 scattered nickel stores operating in Michigan 00:09:17.389 --> 00:09:19.269 and Western New York. Just selling stuff for 00:09:19.269 --> 00:09:21.629 five cents. Right. So he decided to test the 00:09:21.629 --> 00:09:25.509 concept on a larger scale. On February 22, 1879, 00:09:25.690 --> 00:09:27.629 he opened his great five -cent store in Utica, 00:09:27.669 --> 00:09:32.960 New York. The prevailing business logic of 1879 00:09:32.960 --> 00:09:35.860 dictated that he was completely out of his mind. 00:09:36.139 --> 00:09:37.899 Yeah, they thought he was crazy. Yeah, the idea 00:09:37.899 --> 00:09:40.480 that you could pay commercial rent, pay a staff, 00:09:40.940 --> 00:09:43.820 handle logistics, and maintain a functional business 00:09:43.820 --> 00:09:46.600 by selling nothing but five -cent items. It completely 00:09:46.600 --> 00:09:49.019 defied every standard economic principle of the 00:09:49.019 --> 00:09:51.759 era. Retailers assumed the margins were far too 00:09:51.759 --> 00:09:54.080 microscopic to sustain a standalone business. 00:09:54.259 --> 00:09:56.480 Because five cents is just nothing. Exactly. 00:09:57.049 --> 00:09:59.549 But Woolworth proved that if the volume was high 00:09:59.549 --> 00:10:02.269 enough and the sourcing was tight enough, the 00:10:02.269 --> 00:10:04.970 microscopic margins aggregated into massive wealth. 00:10:05.490 --> 00:10:07.629 He literally created the American institution 00:10:07.629 --> 00:10:09.889 of the five and dime. And as soon as Woolworth 00:10:09.889 --> 00:10:12.110 proved the math worked, the floodgates just opened. 00:10:12.330 --> 00:10:14.570 You ended up with this massive graveyard of dime 00:10:14.570 --> 00:10:16.669 stores that popped up over the subsequent decades. 00:10:16.850 --> 00:10:19.230 Right, they were everywhere. They dominated local 00:10:19.230 --> 00:10:21.409 main streets and eventually died out. You know, 00:10:21.470 --> 00:10:25.309 names like Neisner's, TG &Y, WT Grant's, Sprouse 00:10:25.309 --> 00:10:27.629 Wright's. But some of those early experiments 00:10:27.629 --> 00:10:30.110 didn't die. They just mutated into something 00:10:30.110 --> 00:10:33.429 much bigger. I mean, S .S. Kredge Company eventually 00:10:33.429 --> 00:10:36.429 evolved its format and became Kmart. Walton's 00:10:36.429 --> 00:10:39.389 Five and Dime famously became Walmart. It's amazing. 00:10:39.629 --> 00:10:42.570 The biggest big box retailers on Earth share 00:10:42.570 --> 00:10:45.669 the exact same evolutionary ancestor. Yeah. But 00:10:45.669 --> 00:10:48.070 the traditional variety store model did hit. 00:10:48.159 --> 00:10:51.500 a massive mid -century slump. Oh, right. The 00:10:51.500 --> 00:10:54.159 suburbs. Exactly. As populations moved out to 00:10:54.159 --> 00:10:57.120 the suburbs in the 50s and 60s, consumer habits 00:10:57.120 --> 00:10:59.700 shifted heavily toward massive indoor malls. 00:10:59.720 --> 00:11:02.799 Which were huge back then. Huge. And the variety 00:11:02.799 --> 00:11:05.179 store started losing significant ground to highly 00:11:05.179 --> 00:11:08.340 specialized discount drug stores, massive office 00:11:08.340 --> 00:11:12.340 supply chains, and dedicated toy stores. By 1997, 00:11:12.679 --> 00:11:15.299 Woolworth's had closed its very last US store. 00:11:15.440 --> 00:11:17.340 You know, retail historians love to say the mall 00:11:17.340 --> 00:11:19.279 killed the variety store, but that doesn't actually 00:11:19.279 --> 00:11:21.259 track with what the sources show happened next. 00:11:21.360 --> 00:11:23.779 No, not at all. The late 90s saw an absolute 00:11:23.779 --> 00:11:26.039 explosion of dollar stores. They didn't die. 00:11:26.340 --> 00:11:27.759 Wait, didn't they just shed their skin? That's 00:11:27.759 --> 00:11:29.960 a great way to put it. Yeah, they stopped trying 00:11:29.960 --> 00:11:32.360 to compete with the mall and instead made themselves 00:11:32.360 --> 00:11:34.940 the hyper convenient alternative you hit on your 00:11:34.940 --> 00:11:36.919 way home because, you know, you don't want to 00:11:36.919 --> 00:11:39.240 park half a mile away at a mall just to buy a 00:11:39.240 --> 00:11:42.019 roll of scotch tape and some AA batteries. If 00:11:42.019 --> 00:11:44.649 we connect this to the bigger picture. that pivot 00:11:44.649 --> 00:11:47.870 to convenience is the key to their modern dominance. 00:11:48.509 --> 00:11:50.970 They completely abandoned the massive footprints 00:11:50.970 --> 00:11:55.769 and instead focused on freestanding smaller stores. 00:11:55.889 --> 00:11:58.250 Just popping up everywhere. Right. They acted 00:11:58.250 --> 00:12:00.830 like water, basically filling in the cracks of 00:12:00.830 --> 00:12:03.649 the retail pavement where massive supermarkets 00:12:03.649 --> 00:12:06.980 and malls simply couldn't fit. small rural towns, 00:12:07.559 --> 00:12:09.759 dense downtowns, and tight neighborhood corners. 00:12:10.179 --> 00:12:12.120 Convenience became their ultimate weapon. It 00:12:12.120 --> 00:12:14.500 drove impulse purchases. You run in for paper 00:12:14.500 --> 00:12:16.779 towels, you leave with candy, a cheap screwdriver, 00:12:17.200 --> 00:12:19.360 and a greeting card. And that convenience allowed 00:12:19.360 --> 00:12:21.559 them to actively replace other retail types. 00:12:21.840 --> 00:12:24.379 Since 1998, this dollar store industry has grown 00:12:24.379 --> 00:12:29.919 by 43%. 43%. Yes. To visualize that scale. By 00:12:29.919 --> 00:12:33.480 2018, Dollar Tree had 14 ,000 distinct locations 00:12:33.480 --> 00:12:36.679 in the U .S. The very next year, Dollar General 00:12:36.679 --> 00:12:40.080 hit 15 ,000 locations. They embedded themselves 00:12:40.080 --> 00:12:42.799 into the daily routines of millions of people. 00:12:43.100 --> 00:12:45.440 And because they are so perfectly calibrated 00:12:45.440 --> 00:12:48.340 for that quick, frictionless trip, they've infiltrated 00:12:48.340 --> 00:12:50.879 places and demographics you would never, ever 00:12:50.879 --> 00:12:53.039 expect. This is where it shatters a lot of myths. 00:12:53.279 --> 00:12:56.639 Totally. We have this ingrained cultural association 00:12:56.639 --> 00:12:59.559 that dollar stores are exclusively for like lower 00:12:59.559 --> 00:13:02.519 income rural towns or struggling urban neighborhoods. 00:13:02.980 --> 00:13:04.960 But here's where it gets really interesting. 00:13:05.000 --> 00:13:08.019 Relate on us. Atherton, California. Atherton 00:13:08.019 --> 00:13:10.500 has a variety store operating right within its 00:13:10.500 --> 00:13:13.500 city limits and the median household income there 00:13:13.500 --> 00:13:15.879 is nearly one hundred and eighty five thousand 00:13:15.879 --> 00:13:18.340 dollars a year. That's incredible. Right. It 00:13:18.340 --> 00:13:20.320 proves that a good bargain is an irresistible 00:13:20.320 --> 00:13:22.720 universal human trait. It doesn't matter how 00:13:22.720 --> 00:13:25.039 much wealth you have accumulated. Nobody wants 00:13:25.039 --> 00:13:27.120 to feel like a sucker paying five dollars for 00:13:27.120 --> 00:13:29.539 a basic roll of gift wrap when they know it costs 00:13:29.539 --> 00:13:32.860 pennies to make. Oh, absolutely. And we see this 00:13:32.860 --> 00:13:35.360 psychological shift confirmed in the global data, 00:13:35.480 --> 00:13:38.070 too, particularly where following major economic 00:13:38.070 --> 00:13:41.789 shocks. Economic trauma basically acts as a cultural 00:13:41.789 --> 00:13:44.950 reset button. Oh, interesting. Like how? Well, 00:13:45.029 --> 00:13:47.580 for example. In the aftermath of the 2008 global 00:13:47.580 --> 00:13:51.019 financial crisis, the 99 P stores over in the 00:13:51.019 --> 00:13:54.740 United Kingdom reported a massive sustained surge 00:13:54.740 --> 00:13:57.539 in higher income customers. Oh, wow. It's like 00:13:57.539 --> 00:14:00.220 the collective economic panic gave everyone cultural 00:14:00.220 --> 00:14:02.580 permission to shop at the discount store. Exactly. 00:14:02.740 --> 00:14:05.080 The stigma evaporated because everyone was suddenly 00:14:05.080 --> 00:14:08.080 looking for ways to cut corners. Right. A country's 00:14:08.080 --> 00:14:10.559 economic downturn serves as a highly effective 00:14:10.559 --> 00:14:13.899 incubator for these stores. It permanently changes 00:14:13.899 --> 00:14:16.529 shopper habits and normalizes discount shopping 00:14:16.529 --> 00:14:18.990 for the upper middle class long after the broader 00:14:18.990 --> 00:14:21.129 economy recovers. That makes total sense. Look 00:14:21.129 --> 00:14:23.289 at Japan. They have their famous 100 yen shops, 00:14:23.470 --> 00:14:25.409 which is roughly equivalent to a single dollar. 00:14:26.009 --> 00:14:28.509 These stores proliferated incredibly rapidly 00:14:28.509 --> 00:14:30.590 starting around 2001. Kind of after the crash. 00:14:31.009 --> 00:14:33.970 Yes. That timeline is widely considered a direct 00:14:33.970 --> 00:14:37.549 after effect of Japan's lost decade, their prolonged 00:14:37.549 --> 00:14:41.149 economic recession. A major player there, Daiso. 00:14:41.210 --> 00:14:44.509 started earlier in 1991, but really caught fire 00:14:44.509 --> 00:14:46.250 during that recession. Oh, Daiso, I've heard 00:14:46.250 --> 00:14:49.549 of them. Yeah. They now have around 2 ,400 stores 00:14:49.549 --> 00:14:52.710 in Japan alone, and they are expanding by roughly 00:14:52.710 --> 00:14:55.509 40 stores every single month. Wait, 40 new stores 00:14:55.509 --> 00:14:58.350 a month? That is a staggering pace of expansion. 00:14:58.590 --> 00:15:01.029 And it's not isolated to Japan either. China 00:15:01.029 --> 00:15:04.269 has a massive chain called Miniso that specializes 00:15:04.269 --> 00:15:07.070 in household goods, cosmetics, and toys. Gumiiko 00:15:07.070 --> 00:15:10.149 is huge. In 2016 alone, their sales revenue hit 00:15:10.149 --> 00:15:13.370 $1 .5 billion. And they've exported that model 00:15:13.370 --> 00:15:16.070 globally as well with 1 ,800 stores across Asia, 00:15:16.409 --> 00:15:18.870 Europe, Oceania, Africa, North and South America. 00:15:19.509 --> 00:15:22.470 But if you want to examine the absolute bleeding 00:15:22.470 --> 00:15:25.470 edge of hyper competitive discount retail, you 00:15:25.470 --> 00:15:27.350 have to look at Hong Kong. OK, what's going on 00:15:27.350 --> 00:15:29.970 in Hong Kong? The market there is so intense 00:15:29.970 --> 00:15:33.549 that major traditional department stores actually 00:15:33.549 --> 00:15:36.879 opened their own $10 shops. which is about $1 00:15:36.879 --> 00:15:41.059 .28 U .S., just to prevent losing foot traffic 00:15:41.059 --> 00:15:43.759 to the discount sector. Wow, they had to cannibalize 00:15:43.759 --> 00:15:46.759 their own business. Pretty much. And now the 00:15:46.759 --> 00:15:49.580 market has fractured even further. There are 00:15:49.580 --> 00:15:53.139 $8 shops and even $2 shops competing fiercely 00:15:53.139 --> 00:15:56.379 in poorer communities. That is roughly 26 U .S. 00:15:56.500 --> 00:15:58.379 cents per item. Wait, wait. Let's look at the 00:15:58.379 --> 00:16:00.980 mechanics of that. How is 26 cents mathematically 00:16:00.980 --> 00:16:03.299 possible? I mean, even if the product is terrible, 00:16:03.740 --> 00:16:05.879 the logistics of physically moving a plastic 00:16:05.879 --> 00:16:08.720 bucket from a factory to a store shelf has to 00:16:08.720 --> 00:16:11.440 cost more than a quarter. It requires a ruthlessly 00:16:11.440 --> 00:16:14.220 efficient supply chain. First, Hong Kong has 00:16:14.220 --> 00:16:16.580 no sales tax, which removes a whole layer of 00:16:16.580 --> 00:16:19.139 friction. OK, that helps. Second, it has direct, 00:16:19.320 --> 00:16:22.059 immediate geographic and economic access to mainland 00:16:22.059 --> 00:16:25.139 manufacturing hubs like Shenzhen. You eliminate 00:16:25.139 --> 00:16:27.320 the middleman, you eliminate international shipping 00:16:27.320 --> 00:16:29.679 container costs, you strip away any marketing 00:16:29.679 --> 00:16:32.440 budget, and you utilize completely unbranded 00:16:32.440 --> 00:16:35.259 direct from factory items. So it's just raw efficiency. 00:16:35.580 --> 00:16:38.220 Pure efficiency. Yeah. You then rely entirely 00:16:38.220 --> 00:16:42.039 on the massive, dense foot traffic of Hong Kong's 00:16:42.039 --> 00:16:45.820 urban centers to drive the volume. It is the 00:16:45.820 --> 00:16:49.059 ultimate extreme expression of the microscopic 00:16:49.059 --> 00:16:51.899 margin model Frank Woolworth invented. Man, it's 00:16:51.899 --> 00:16:54.879 a localized retail experience fueled by a massive 00:16:54.879 --> 00:16:57.600 global engine. You see this in India too. The 00:16:57.600 --> 00:17:00.519 US dollar store chain there, founded in 2003, 00:17:00.940 --> 00:17:02.740 originally imported merchandise directly from 00:17:02.740 --> 00:17:06.400 America. But as they expanded to over 200 stores, 00:17:06.460 --> 00:17:08.980 they had to build a vastly more complex sourcing 00:17:08.980 --> 00:17:11.660 network. They now pull inventory from China, 00:17:11.960 --> 00:17:15.160 Indonesia, Thailand, Spain, Portugal. the U .K. 00:17:15.160 --> 00:17:18.099 and the U .S. all to maintain that fixed price 00:17:18.099 --> 00:17:21.079 point on the shelf in India. OK, so we've established 00:17:21.079 --> 00:17:23.660 they have engineered supply chains capable of 00:17:23.660 --> 00:17:25.859 moving incredible volumes of cheap goods. And 00:17:25.859 --> 00:17:28.140 they appeal to everyone from tech millionaires 00:17:28.140 --> 00:17:30.940 in Atherton to bargain hunters in Hong Kong. 00:17:31.079 --> 00:17:33.380 Yeah, they are everywhere. But this massive, 00:17:33.740 --> 00:17:36.539 largely unchecked dominance brings us to a highly 00:17:36.539 --> 00:17:39.059 complex, thorny consequence of their success. 00:17:39.200 --> 00:17:41.480 Because as they fill in those cracks in the retail 00:17:41.480 --> 00:17:43.819 pavement, they aren't just selling plastic toys 00:17:43.819 --> 00:17:46.400 and stationary anymore. They have deeply embedded 00:17:46.400 --> 00:17:49.440 themselves in local economies by expanding heavily 00:17:49.440 --> 00:17:52.180 into groceries. Which brings us to the incredibly 00:17:52.180 --> 00:17:56.039 heated debate around food deserts. You know areas 00:17:56.039 --> 00:17:59.559 defined by their limited access to healthy affordable 00:17:59.559 --> 00:18:03.000 fresh food. The allegations leveled against dollar 00:18:03.000 --> 00:18:05.759 sores in this arena are incredibly heavy. This 00:18:05.759 --> 00:18:07.839 raises an important question and it's honestly 00:18:07.839 --> 00:18:10.140 one of the most fascinating tensions in modern 00:18:10.140 --> 00:18:12.829 urban planning. The mechanics of the allegation 00:18:12.829 --> 00:18:15.829 work like this. Critics and various community 00:18:15.829 --> 00:18:18.970 organizations argue that dollar stores actively 00:18:18.970 --> 00:18:21.430 proliferate these food deserts. Okay, how so? 00:18:22.049 --> 00:18:23.750 Well, a dollar store moves into a community. 00:18:24.029 --> 00:18:26.490 and heavily discounts their shelf -stable foods, 00:18:26.950 --> 00:18:30.349 canned goods, processed snacks, cereals. They 00:18:30.349 --> 00:18:32.829 basically undercut the local independent grocery 00:18:32.829 --> 00:18:35.490 store on those center aisle items. And a local 00:18:35.490 --> 00:18:37.529 grocer operates on a really delicate balance, 00:18:37.690 --> 00:18:39.930 right? They make lower margins on the fresh produce 00:18:39.930 --> 00:18:41.970 and meat, but they make their reliable profit 00:18:41.970 --> 00:18:44.369 on those center aisle dry goods. Precisely the 00:18:44.369 --> 00:18:46.930 issue. When the dollar store steals the dry goods 00:18:46.930 --> 00:18:49.930 business, the local grocer can't survive on fresh 00:18:49.930 --> 00:18:52.369 produce alone and they fold. Oh, wow, so they 00:18:52.369 --> 00:18:54.690 just go out of business. Exactly. Suddenly, the 00:18:54.690 --> 00:18:57.369 local grocery store is gone, and the dollar store, 00:18:57.430 --> 00:18:59.490 which typically doesn't sell fresh apples or 00:18:59.490 --> 00:19:02.089 raw chicken, is the only option left for food 00:19:02.089 --> 00:19:04.769 in that community. As a direct result of this 00:19:04.769 --> 00:19:07.369 mechanical chain of events, several U .S. states 00:19:07.369 --> 00:19:10.569 and municipalities are actually utilizing local 00:19:10.569 --> 00:19:14.289 zoning laws to pass strict restrictions on where 00:19:14.289 --> 00:19:16.710 new dollar stores are legally allowed to open. 00:19:16.920 --> 00:19:19.400 But I mean, the companies push back on this narrative 00:19:19.400 --> 00:19:21.559 incredibly hard, don't they? Oh, vehemently. 00:19:21.900 --> 00:19:24.519 Yeah. Dollar Tree vehemently disputes the claim 00:19:24.519 --> 00:19:27.960 that they are destroying local food access. Their 00:19:27.960 --> 00:19:30.480 defense is that they are actively creating food 00:19:30.480 --> 00:19:32.640 options in underserved communities that were 00:19:32.640 --> 00:19:34.680 already abandoned by traditional supermarkets 00:19:34.680 --> 00:19:36.779 long before they ever arrived. Right. They see 00:19:36.779 --> 00:19:38.940 themselves as the solution, not the problem. 00:19:39.200 --> 00:19:41.500 Exactly. It's a massive chicken or the egg scenario. 00:19:41.950 --> 00:19:44.230 Are the dollar stores the active cause of the 00:19:44.230 --> 00:19:46.809 local grocery stores closing or are they just 00:19:46.809 --> 00:19:49.250 opportunistic scavengers moving into the vacuum 00:19:49.250 --> 00:19:52.630 left behind by a failing local economy that simply 00:19:52.630 --> 00:19:54.769 didn't have the median income to support a full 00:19:54.769 --> 00:19:57.390 scale supermarket anymore? It is the ultimate 00:19:57.390 --> 00:19:59.730 friction point between free market corporate 00:19:59.730 --> 00:20:02.960 expansion and community driven zoning. You basically 00:20:02.960 --> 00:20:05.779 have two distinctly different views of the exact 00:20:05.779 --> 00:20:09.019 same economic data. One side sees a predatory 00:20:09.019 --> 00:20:12.059 expansion model methodically destroying fragile 00:20:12.059 --> 00:20:15.339 local retail ecosystems. The other side sees 00:20:15.339 --> 00:20:18.059 a highly efficient affordable lifeline being 00:20:18.059 --> 00:20:20.900 extended to rural and urban areas that traditional 00:20:20.900 --> 00:20:23.660 grocers have completely ignored. It's just so 00:20:23.660 --> 00:20:26.079 complicated. It really is an incredibly complex 00:20:26.079 --> 00:20:29.579 debate that is currently redefining local retail 00:20:29.579 --> 00:20:31.880 zoning laws across the country. We aren't here 00:20:31.880 --> 00:20:34.339 to say who is right, but it's vital to understand 00:20:34.339 --> 00:20:36.660 both arguments. And the irony of this massive 00:20:36.660 --> 00:20:38.940 dominance, the fact that they are powerful enough 00:20:38.940 --> 00:20:41.299 to trigger state zoning legislation, is that 00:20:41.299 --> 00:20:43.700 their grocery model is actually shockingly fragile. 00:20:43.700 --> 00:20:46.359 Very fragile. Because they are shackled to that 00:20:46.359 --> 00:20:48.799 rigid pricing structure, they have almost zero 00:20:48.799 --> 00:20:51.400 wiggle room when those global supply chains get 00:20:51.400 --> 00:20:53.640 messy. That is a critical vulnerability. Their 00:20:53.640 --> 00:20:56.079 margins are razor thin by design. A perfect example 00:20:56.079 --> 00:20:58.579 of this fragility occurred recently in 2023. 00:20:59.240 --> 00:21:01.160 Dollar Tree reportedly had to stop selling eggs 00:21:01.160 --> 00:21:03.680 entirely across its stores. Just stop selling 00:21:03.680 --> 00:21:06.599 them. Yeah. The wholesale price of eggs had simply 00:21:06.599 --> 00:21:08.799 increased too much due to avian flu and inflation. 00:21:09.420 --> 00:21:11.240 A traditional grocery store just absorbs that 00:21:11.240 --> 00:21:13.240 hit by raising the price of a carton of eggs 00:21:13.240 --> 00:21:15.960 for the consumer from, say, $3 to $5. Right. 00:21:16.039 --> 00:21:18.339 You just pay more at checkout. But a dollar store 00:21:18.339 --> 00:21:21.079 cannot easily pass that fluctuating cost on mat. 00:21:21.319 --> 00:21:24.000 without breaking its fundamental psychological 00:21:24.000 --> 00:21:26.779 promise of the fixed price point. So, unable 00:21:26.779 --> 00:21:29.220 to bend, they simply stop carrying them. Which 00:21:29.220 --> 00:21:31.900 really brings this whole deep dive full circle. 00:21:32.220 --> 00:21:34.839 We've traced this entire phenomenon from Frank 00:21:34.839 --> 00:21:37.559 Woolworth's first little nickel store in Utica, 00:21:37.660 --> 00:21:40.319 New York, defying all the established business 00:21:40.319 --> 00:21:43.960 logic of 1879, all the way to high -income shoppers 00:21:43.960 --> 00:21:46.240 browsing the aisles in Atherton, California, 00:21:46.740 --> 00:21:49.420 and intense community zoning battles over local 00:21:49.420 --> 00:21:53.019 food access. quite a journey. It has. It is an 00:21:53.019 --> 00:21:55.539 absolute master class in how psychological tricks 00:21:55.539 --> 00:21:57.740 like shrinking package sizes and giving you the 00:21:57.740 --> 00:21:59.839 illusion of a steel... Well, I think it means 00:21:59.839 --> 00:22:02.680 this industry is a brilliant, highly adaptive, 00:22:03.079 --> 00:22:06.640 but potentially unstable balancing act. Which 00:22:06.640 --> 00:22:08.799 leaves you with a significant thought to ponder 00:22:08.799 --> 00:22:11.500 regarding the future of retail. Okay, let's hear 00:22:11.500 --> 00:22:14.880 it. These stores are built entirely on the rigid 00:22:14.880 --> 00:22:17.900 psychological foundation of a fixed price point. 00:22:18.400 --> 00:22:22.369 A dollar. A hundred yen. a pound. But we are 00:22:22.369 --> 00:22:24.690 currently entering an era of unpredictable global 00:22:24.690 --> 00:22:27.609 inflation, rising manufacturing costs, and volatile 00:22:27.609 --> 00:22:30.450 supply chains. Which changes the math. Entirely. 00:22:30.869 --> 00:22:33.250 If the dollar store is fundamentally unable to 00:22:33.250 --> 00:22:35.410 sell things for a dollar anymore without taking 00:22:35.410 --> 00:22:38.529 a loss, what exactly does it become? If they 00:22:38.529 --> 00:22:41.150 have to continually raise prices and break the 00:22:41.150 --> 00:22:43.869 illusion to survive, do they lose their magic 00:22:43.869 --> 00:22:45.990 or do they just become another regular slightly 00:22:45.990 --> 00:22:48.420 disappointing convenience store? It's the ultimate 00:22:48.420 --> 00:22:50.920 magic trick. If the magician's hat catches fire, 00:22:51.140 --> 00:22:53.299 how on earth do you pull the rabbit out? Next 00:22:53.299 --> 00:22:55.240 time you step into a variety store to grab a 00:22:55.240 --> 00:22:57.819 cheap pair of sunglasses or a quick snack, keep 00:22:57.819 --> 00:23:00.640 your eyes open. Notice the package sizes. Notice 00:23:00.640 --> 00:23:02.880 what's placed next to what. Look for the misdirection. 00:23:03.420 --> 00:23:04.940 Thanks for joining us on this deep dive.