You know, when you go to a magic show, I think
the most impressive tricks are the ones that
happen right in front of your face. Oh, definitely.
The close -up stuff. Yeah, exactly. Like, you
are sitting in the front row, completely focused
on the magician's wand or the flashy assistant
or that sudden puff of smoke. Right. But the
real machinery, like the hidden trap doors, the
mirrors, the intricate mechanical setup under
the stage, all of that is completely invisible
to you. Yeah, you don't see any of it. Right.
You are looking directly at the illusion, but
you are entirely missing the underlying reality
of how it works. It's the ultimate misdirection.
I mean, your brain just accepts the simple narrative
being presented, completely ignoring the complex
physics and mechanics required to actually pull
the trick off. And that is exactly what it feels
like when you walk through the automatic sliding
doors of a local variety store. Oh, wow. A dollar
store, a pound shop, a hundred yen store, you
know, whatever you happen to call it in your
neighborhood. You see shelves stacked with cheap,
generic candy, plastic storage bins, neon party
supplies. And you think, OK, this is just a humble,
low -budget retail operation. Right. You think
it's just this tiny, simple thing. Exactly. You're
staring right at the wand. But the hidden trap
door. The machinery operating behind those $1
price tags, it is actually a multi -billion dollar
global leviathan. It really is. So welcome to
the deep dive. Today, we are working from a comprehensive
Wikipedia article on variety stores, which I
know is a topic that sounds incredibly mundane
on the surface. Yeah, it doesn't sound thrilling
at first glance. Right. But our mission today
is to use this source material to unpack that
hidden machinery. We are going to look at the
clever economics, the surprisingly varied demographics,
the historical origins, and the modern real -world
controversies of these retail giants. just to
set the stakes for you, to demonstrate just how
massive this machinery really is. By the year
2018, dollar and variety store revenue had reached
$77 billion. Wait, $77 billion? $77 billion.
And if you want a comparison that truly puts
that scale into perspective, by 2019, Dollar
Tree actually generated higher annual sales than
Macy's. No way. That is, I am still struggling
to wrap my head around that. Eclipsing Macy's
by selling like $1 spatulas and greeting cards.
Yeah. It's wild. Okay, let's unpack this because
the very first mystery we really have to solve
here is the math. How on earth do these stores
actually generate a multi -billion dollar profit?
Right, the numbers don't seem to add up. Exactly.
When you are selling consumer goods so cheaply,
the basic arithmetic of retail just doesn't seem
to function. Well, the answer comes down to a
highly engineered dual pronged pricing strategy.
OK. So the first prong is what you might expect,
which is massive volume combined with razor thin
margins. Right. Just selling a ton of stuff.
Yeah. They are purchasing vast amounts of goods
at heavily discounted wholesale prices. I mean,
when you make a fraction of a cent on a plastic
comb, you need to sell millions of combs to see
a tangible profit. Millions. Wow. But the volume
alone isn't enough to beat Macy's. The second
prong is entirely psychological. They actually
price certain items higher than traditional supermarkets
do. Wait, pause. Higher. Yeah. Actually higher.
But the entire brand identity is built on being
a discount store. Why would anyone buy something
there if it costs more? Because of a cognitive
bias known as the halo effect. The halo effect.
Right. When a consumer walks into a store that
is heavily branded around massive discounts,
the brain simply assumes that everything in the
store is a bargain. Oh, I see. So you grab a
roll of packing tape or a basic kitchen utensil,
assuming it is a steal. But in reality, the store
has applied a massive markup compared to what?
Like a standard big box retailer? charges for
the exact same item. Oh, man. It is like a retail
optical illusion. They construct an environment
that completely tricks the shopper's brain into
feeling like they're getting away with a heist.
Yeah. You buy a tiny travel sized bottle of a
name brand body wash for a dollar and you feel
victorious. You feel great about it. Right. But
if you actually do the math. and calculate the
price per ounce, it is way more expensive than
just buying the bulk bottle at a standard grocery
store. Yeah. And that phenomenon is called shrink
flation. And it is a core tactic for hitting
those fixed single price points like one dollar
or one pound. Just shrinking the package. Exactly.
To maintain that fixed price on the shelf, the
supply chain has to get very creative. They reduce
the package size or they use generic private
labels manufactured with significantly cheaper
materials. Makes sense. But beyond that, The
source details how they rely on alternative supply
networks. They source overruns, bankruptcy stock,
and they tap heavily into the gray market. I
need you to define those terms because they sound
vaguely illicit. What is the difference between
an overrun, bankruptcy stock, and the gray market?
Let's break down the mechanics of each. So overruns
happen when a manufacturer simply produces too
much of a product. Like they just overshot the
target. Right. Say a massive batch of seasonal
paper plates and they need to liquidate that
excess inventory quickly to free up warehouse
space. Okay. Then there's bankruptcy stock or
closeout stock. That occurs when a different
retail chain fails. Oh, wow. Yeah. The variety
store swoops in and buys the failed company's
remaining inventory for pennies on the dollar.
Okay. Those make total sense. You are just capitalizing
on someone else's miscalculation or misfortune.
But what about the gray market? That sounds like
something out of a spy movie. It does, right.
But the gray market just involves buying legitimate,
authentic goods outside of the brand's intended
distribution channels. OK, like that. Well, let's
say a major cosmetics brand manufactures a specific
shampoo meant exclusively for the Eastern European
market. And it's priced lower for that specific
economy. OK, I fall. A third party broker might
buy massive quantities of that shampoo in Europe,
ship it across the ocean and sell it to a US
dollar store. Wow. Is that even allowed? The
product is totally real and legal, but the original
brand never intended for it to be sold in an
American discount store. It allows the variety
store to offer name brand recognition at a fractured
cost. That is fascinating. But you know, the
source material brought up one sourcing tactic
that genuinely made me pause. Oh really? Which
one? It mentioned a regional dollar store in
the Syracuse, New York area called Real Deals.
According to the article, they stock their shelves
almost entirely with surplus items and out -of
-date food products. Oh yes, the expired food.
I am deeply confused by this. Selling expired
food, how does a health inspector not shut that
down immediately? Well, this is a perfect example
of how global supply chains collide with highly
specific local jurisdictions. In the United States,
with a few state -by -state exceptions for highly
perishable items like infant formula or certain
dairy products, it is generally perfectly legal
to sell food past its printed date. Wait, how
is that possible? Yeah, does the expiration date
just mean nothing? Kind of. Under the FDA guidelines,
those dates like sell by or best if used by are
generally treated as manufacturer suggestions
for peak quality. They aren't strict safety deadlines.
Are you serious? Yeah. The manufacturer is simply
stating that the crackers might be a bit stale
after that date, not that they are dangerous.
So a store like Real Deals can legally buy that
expired stock from traditional grocery stores
at a massive discount and resell it. Wow. I am
assuming that standard does not fly everywhere.
Oh, not at all. In the United Kingdom, the legal
mechanism is entirely different. It is strictly
illegal to sell goods after they're printed use
by date. Right. That makes more sense to me.
Yeah, a health and safety inspector would absolutely
shut that down over there. So a business model
relying on expired food simply could not exist
in the UK. The underlying machinery of the store
has to adapt to the legal reality of its specific
region. OK, so the picture is becoming clear.
We understand the mechanisms of how they are
generating these profits. The tiny margins on
huge volume, the psychological halo effect, the
gray market sourcing, and even leveraging legal
loopholes on food dates. Right. It's a complex
machine. It really is. But if we follow the logic,
that brings us to the next piece of the puzzle.
If the economics rely entirely on moving sheer,
massive volume, they can't just be selling to
a tiny niche of people. No, definitely not. So
who is actually keeping these places in business?
Well, if we look at the data provided in the
sources, we really have to completely dismantle
a very common cultural stereotype. OK, let's
do it. A vast majority of people link variety
stores exclusively with low -income neighborhoods
or economically depressed areas. But the demographic
reality is actually much broader. I actually
highlighted a prime example of this from the
article because it seems so out of place. Atherton,
California. Oh, yes. For context, Atherton is
a town with a median household income of nearly
$185 ,000 a year. It is literally one of the
wealthiest areas in the country. Huge money.
Right. And yet there is a variety store sitting
right there within its city limits. I mean, if
you are bringing home almost 200 grand a year,
you are not struggling to afford name brand paper
towels. No. Well, you're really not. Is this
less about people needing to shop there and more
about the human psychology of loving a treasure
hunt? That is exactly what it is. It comes down
to the human psychology of the treasure hunt.
For that demographic, it is experiential retail
masquerading as discount shopping. Experiential
retail. I like that. Think about the sourcing
mechanisms we just discussed. The overruns, the
closeout stock from bankruptcies, the gray market
imports. Because of how they source, the inventory
on the shelves is constantly rotating. It's unpredictable.
You never know what's going to be there on a
Tuesday versus a Friday. Precisely. You might
walk in and find a weird, obscure brand of imported
European cookies or a surprisingly well -made
ceramic mug for a single coin. Finding that item
triggers a dopamine hit. Right. It feels like
a victory. It's a completely different psychological
driver than walking into a standard grocery store
with a strict predictable list of weekly tours.
It becomes entertainment. And it isn't just an
American phenomenon either. The source noted
that in Great Britain following the 2008 financial
crisis, the chain ninety nine P stores reported
a highly notable increase in higher income customers
walking through their doors. Yeah, that was a
massive shift. It was as if the economic crash.
gave wealthy people cultural permission to seek
out that bargain hunting dopamine hit. Exactly.
The stigma evaporated and the entertainment value
of the treasure hunt remained. But you know,
it is easy to view these stores as a fun, quirky
treasure hunt when you live in a wealthy enclave
like Atherton or when you treat it as a novelty.
Sure. But that dopamine hit completely vanishes
when the variety store is literally the only
place in your town to buy dinner. Yeah, that
changes things entirely. And that reality brings
us to a major real -world controversy. When these
stores set up shop in vulnerable neighborhoods,
they're no longer a quirky place to buy cheap
party balloons. They become the primary infrastructure
for food. And this raises an important question
regarding how local retail ecosystems balance
aggressive corporate expansion with community
health. The core of this controversy centers
around the concept of food deserts. A food desert
is a geographic area where residents have highly
limited or nonexistent access to affordable,
nutritious, and healthy food, particularly fresh
produce and raw meats. And the allegation, which
is backed up by various studies and community
organizations mentioned in our source material,
is that dollar stores actually manufacture these
food deserts. The mechanism they point to is
predatory competition. The argument is that a
dollar store moves into a neighborhood and sells
heavily processed, highly packaged foods at rock
bottom prices. And the local independent grocery
store simply cannot compete with those multinational
supply chain margins on canned goods, so the
grocer eventually goes bankrupt. Once the grocer
is gone, the dollar store is the only option
left. And because the traditional variety store
model is not engineered to maintain the complex,
expensive refrigerated supply chains required
to stock fresh produce, the community is left
with nothing but aisles of shelf stable snacks,
canned goods and processed meals. Which is devastating
for local health. It creates a fundamental structural
shift in the local food economy, severely limiting
dietary choices. But the source material is very
clear that we have to look at both sides of this
dynamic. Dollar Tree has explicitly and publicly
disputed this claim. Yes, they pushed back hard
on this. Their counter argument is that they
are not the ones destroying local grocery stores.
They argue that they are specifically opening
up locations in areas where traditional grocers
have already abandoned the population because
the grocers couldn't make the margins work. From
the corporate perspective, they are not creating
the desert. They are bringing an oasis of affordable
calories into a void that already existed. The
debate over causality is intense. It is fundamentally
a question of whether the variety store is the
catalyst for the community's retail collapse
or merely a symptom of a broader economic abandonment.
So what does this all mean? Are these stores
the cause of the grocery void or are they just
filling a vacuum left by other businesses? It's
incredibly difficult to say for sure. But regardless
of the cause, the real world fallout is tangible.
In response to these allegations, numerous municipalities
and even U .S. stoats have passed specific zoning
restrictions. Interesting. Yeah. These laws are
designed to limit where new dollar stores can
open, specifically to prevent them from clustering
in vulnerable neighborhoods and overwhelming
whatever independent retail remains. It's a really
complex cycle to untangle. Are they the cause
of the void or just filling the vacuum? There
is a specific detail from 2023 in the source
that I think perfectly illustrates the danger
of relying on them to fill that vacuum. Oh, right.
It involves literal eggs. Ah, yes. The global
egg inflation of 2023. This is a perfect case
study of the model's limitations. Right. So massive
inflation hits the agricultural sector, and the
wholesale price of eggs skyrockets globally.
It was a huge spike. Now, if you are a traditional
grocery store, you have to keep selling eggs.
They are a fundamental dietary staple. You just
absorb some of the cost, or you pass the higher
price onto the consumer. But what did Dollar
Tree do? They reportedly just stopped selling
eggs altogether. They dropped the product because
the mechanism of their business model demanded
it. Just like that? Yeah. If the wholesale price
of an item exceeds their fixed retail price point,
or if it cuts too deeply into their required
profit margin, they simply remove it from the
supply chain. Wow. They are not tethered to the
social contract of being a full -service grocer.
Their primary loyalty, structurally, is to their
margin and their rigid pricing model, not to
providing a complete nutritional diet for the
local community. Which perfectly highlights the
immense vulnerability of a town that relies entirely
on a discount variety model for its daily sustenance.
I mean, if the math doesn't work for corporate,
your town just doesn't get eggs anymore. Exactly.
It is an incredible amount of power for a discount
store to hold. To really grasp how a concept
built on selling cheap trinkets gained the power
to reshape municipal zoning laws and dictate
local diets, we really have to look backwards.
We do. We need context. Right. We need to look
at their history and how this retail model actually
conquered the globe. Well, the origins of this
machinery date back much further than most people
realize. We can trace the DNA of the modern variety
store back to February 20 tech 1879 in Utica,
New York. Okay, 1879. A man named Frank Winfield
Woolworth opened what he called his great five
cents store. Oh, the original five and dime.
Exactly. But why was that revolutionary in 1879?
Weren't there already? general stores selling
cheap goods back then. There were, but the prevailing
economic wisdom of the 19th century was that
a retail storefront could not possibly survive
by exclusively selling low price goods. Oh, they
thought you needed a mix. Right. Economists believed
you needed the high profit margins of big ticket
items like furniture or farm equipment to subsidize
the cost of keeping the lights on. Makes sense.
But Woolworth proved the skeptics wrong by engineering
a new mechanism. He proved that if you keep overhead
aggressively low, cut out the middlemen, and
drive volume astronomically high, the nickel
store could thrive all on its own. It spawned
an entire industry. And the names from that era
became legendary. S .S. Kredge, which eventually
morphed into Kmart. Walton's Five and Dime in
Arkansas, which was the precursor to the Walmart
empire. Massive legacies. But the Five and Dime
era didn't last forever. Our source notes a major
shift in the mid -20th century. As consumers
moved out to the suburbs in the 1950s and 60s,
shopping habits shifted to massive indoor shopping
malls. Right, the mall boom. Yeah, and the traditional
variety stores tried to adapt. But they started
losing ground to specialized discount drug stores
and massive big -box retailers that could offer
wider selections. The last U .S. Woolworths actually
closed its doors in 1997. But 1997 is right around
the time the concept was being resurrected with
a highly strategic pivot. Oh, really? Yeah. The
late 1990s saw a massive resurgence in the dollar
store model, but they completely changed their
real estate strategy. Instead of trying to anchor
themselves in massive suburban malls where the
rent was high and the competition was fierce,
the new generation focused on freestanding locations.
Oh, that makes so much sense. They placed themselves
in rural small towns, neglected downtown. and
convenient neighborhood corners where big box
stores simply couldn't fit. They offered speed
and localized convenience. Here's where it gets
really interesting, though. The strategic resurrection
isn't just an American phenomenon. While the
U .S. was blanketing small towns with freestanding
dollar stores in the 90s, the rest of the world
was developing their own distinct versions of
this economic machine. Oh, absolutely. It's a
global story. And there's a wild paradox in how
they grew. You look at Japan, they have the 100
yen shops. The biggest player there is Daiso,
which opened its first store in 1991 and now
operates around 2 ,400 stores just within Japan.
2 ,400. It's staggering. Right. But I notice
in the timeline, Those stores didn't truly proliferate
and become a massive cultural staple until around
2001. That is, right in the aftermath of Japan's
lost decade, which was a brutal, long -lasting
economic recession. How did the retail chain
experience explosive growth during a historic
recession? It is because economic downturns act
as rocket fuel for the fixed -price variety store
industry. Rocket fuel? Yes. During Japan's lost
decade, the broader economy suffered severe deflation,
and consumers lost a massive amount of spending
power. Traditional retailers were collapsing,
but Daiso utilized a brilliant supply chain mechanism.
They shifted their manufacturing heavily to China,
where labor and materials were drastically cheaper.
Oh, wow. Because they maintained the fixed 100
yen price point, but their internal costs plummeted,
their margins actually expanded, they were offering
incredible relative value to a struggling population
while remaining highly profitable. We see this
pattern repeatedly. We saw the exact same mechanism
with the 99p stores in the UK reporting a surge
of customers after the 2008 global financial
crash. And look at China's own version. The Chain
Manisa, which sells cosmetics, stationery, and
household goods, reached $1 .5 billion in revenue
by 2016 and now operates in over 80 countries.
It almost sounds like the fixed -price retail
model is built like a deep -sea submarine. A
submarine? How do you mean? Well, a deep -sea
submarine is engineered to survive under immense
downward pressure. In the retail world, that
downward pressure is an economic recession. The
worse the economy gets, the more the submarine
thrives in its natural environment. That's a
great way to put it. But if you take that same
submarine and rapidly bring it to the surface
or introduce intense internal pressure -like
rapid uncontrollable inflation, the rigid hull
can't handle it. It just implodes. That is a
surprisingly accurate way to visualize the vulnerability
of the model. And we actually have historical
proof of that exact implosion in the source material.
Really? Where? The history of the Dutch chain
HEMA provides a great cautionary tale. HEMA started
in the Netherlands selling goods at strict standard
prices of 10, 25, or 50 cents. It was a massive
success for years. But after the economic devastation
of World War II, the rigid, fixed -price submarine
could not withstand the pressure. Severe inflation
and global supply chain disruptions forced them
to abandon the standard pricing system entirely.
They survived, but only by pivoting their business
model away from fixed prices. Which really brings
us full circle. From Woolworth's five -cent store
in 1879, to the massive expansion of dollar stores
in the 90s, to Japan's 100 yen shops thriving
in a recession, the model is deeply, fundamentally
embedded in the global economy. It really is.
And if we synthesize all the mechanisms we have
discussed today, what we are looking at is a
retail format that is an absolute master class
in consumer psychology, supply chain economics,
and corporate adaptability. They have engineered
a system that turns literal punnies of margin
on generic goods into billions of dollars of
revenue. They have decoded the human desire for
the treasure hunt, attracting shoppers across
the entire income spectrum. The dopamine hit.
Right. And they have made themselves so deeply
integrated into our local infrastructure that
entire municipal zoning battles are being fought
over their presence in our neighborhoods. It
is so much more than cheap candy and plastic
bins. So for you listening right now, the next
time you walk past a dollar store or a pound
shop or a hundred yen store, I really hope you
see it differently. Yeah, look past the illusion.
I hope you see it not just as a convenient stop
to grab a cheap greeting card, but as a seventy
seven billion dollar economic titan. A machine
built on optical illusions, gray market sourcing,
and global supply chains. It's all right there
in front of you. But looking at the entire timeline
we just laid out does leave me with one final
lingering thought. We went from the five and
dime in 1879 to the dollar store in the 90s.
And now, as we saw with the 2023 egg shortage,
we see these stores dropping fundamental staple
items simply because the wholesale price breaks
their rigid retail model. Yeah, the math just
breaks. Exactly. It makes you wonder, as global
inflation marches on, what happens to this retail
model when a single coin or a single bill can
no longer buy anything at all? When the deep
-sea submarine finally cracks, will the true
fixed -price store eventually become nothing
more than a relic of the past? That is the multi
-billion dollar question. The trap door is there.
You just have to know where to look.