Title says it all basically. I understand that inflation is at around 7% give or take. But things that used to cost $1 is now at Dollar Tree / Dollar General / Etc for $1.25 meaning their profit margins are even higher now than they were before inflation, no?
I know dollar stores are actually a rip-off and you get less product for your dollar but everyone is meming about “The $1.25 Store” and I’m super curious how this works.
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Inflation doesn’t only affect the cost of goods purchased, but everything else in the supply chain. Literally every dollar the store spends is worth less than it used to be.
That means, rent costs more, payroll costs more, utilities cost more, insurance costs more…The list goes on. Inflation is felt in every single aspect of the economy, your wallet and dollar store pricing are nowhere near the end or beginning of the economics chart.
There are multiple explanations for this, the first and most obvious one obviously being that there is no law on jacking up prices for anything just because inflation happened, they didn’t have to add 7% just because that happened to be the inflation of a selection of goods and services that make up the anchor for calculating inflation.
There can be some goods that have their prices increased by nothing, some that have their prices decreased and some that have much higher increases than 7%. It’s fair to assume that the dollar store doesn’t happen to be made up entirely of a selection of items that have an average of 7% price increase.
Lastly the dollar stores do not adjust their goods and prices every year as to sell you exactly the same value that nets them exactly the same profits. They might start up with a margin of (no real numbers, just making some up) 30%, then after one year its 28%, after another year there was inflation and the resources in particular became more expensive, making it 20% margin now. After some time, the prices will be increased to reset the margins. It could be that after a couple of years this is just an opportunity to perform a price hike that was long overdue.
Retail stores run a certain margin on their products so if the price goes up it generally means their wholesale cost has gone up, they raise the price to retain the same margin or profitability. The price hike may include outside costs of doing business such as higher salaries for employees or increases in things like taxes. So just because inflation is at a certain percentage that doesn’t necessarily mean that the price on a given product would increase that amount
You know when vending machines increase their prices by increments instead of all in one go. It makes more sense for the store to increase the price by $0.25 instead of 7 cents. This is basically the same way that vending machines increase their price. But it is disingenuous to call your store a dollar store if it isn’t $1. But, I guess a lot of dollar stores don’t only exclusively sell things for $1, so it doesn’t matter much.
Prices have been at 1$ for multiple years and were not being adjusted for inflation. Then after a few years they decided to pull the trigger and jump straight to 1.25$, rather than 1.07, and then next year to 1.16 and so on.
You assume they are telling the truth about that 7% figure. If they say it’s 7%, but in the real world the price of everything has increased by 25%, wouldn’t that (essentially by definition) mean that the real inflation rate is 25%?
Technically, a business can set its price at whatever level it wants, so inflation is really only an excuse. Additionally, 25¢ has the duel appeal of appearing like a minor increase (I mean, it’s only a quarter, right?) and raising profits by 25%.
There’s actually a lot more going on, but it’s mostly theory and analysis of how modern economics should/do function, so I won’t post a screed.
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