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The Insidious Secret of the Dollar Store

Stocks in this article: FDO NDN DG

BOSTON ( MainStreet) -- As a rough economy eats away at disposable income, times have been good for so-called "dollar stores," the bargain-priced purveyors of discounted goods.

Among the national players in this unique space are Family Dollar Stores (FDO), 99-Cent Only Stores (NDN) and Dollar General (DG).

If you're amazed at how cheap things are in a dollar store, you'll be even more amazed to find out you're overspending.

But even the most grateful shopper might wonder where merchandise comes from that can be sold for a dollar (and, truth be told, often a little more). Why are brand-name products cheaper and -- in terms of boxing and labels -- a bit "off"? Are dollar stores really a good deal?

Ellen Ruppel Shell, a journalism professor at Boston University, is author of Cheap: The High Cost of Discount Culture (Penguin Books, 2009).

For the book, she tracked the supply chain for dollar stores back to warehouses exclusive to wholesalers where "you find unbelievable prices ... shoes for 45 cents, that kind of thing" and further back to China and other countries that export many of the goods put up for sale.

Among the lessons she learned is that a low price is far more important than even mediocre quality.

Those 45-cent shoes, for example, "are very poorly made and not meant to last beyond a very short period. They might be great indoors, but you can't really wear them outside."

Even a brand name is no assurance of quality.

"You can't really be sure if the name brands are the same product that are associated with the brand," she says. "You have to be a knowledgeable consumer to know whether, in the case of small electronics, for example, if it is a name brand that also produces an off brand. It is a 'buyer beware' kind of thing."

While true that a frugal shopper can find relative bargains on items such as soap, their business model is designed to get one to actually overspend, she says.

"Things are so inexpensive and you are primed to buy something inexpensive, so you are much more likely to purchase things for which you don't have a use," she says. "Dollar stores are usually shabby, and that is the idea -- it makes it feel more like a 'treasure hunt' as you are poking around. Most of the time, these things are not really treasures, but since you are primed for this experience you are much more likely to make a purchase. At a department store, even at a lower price, you might think of them as shoddy and pass them by, but in the context of a dollar store they kind of glitter and attract you."

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