Dirt Cheap is an extreme value retailer headquartered in Hattiesburg, MS and is an particularly effective example of alignment between the company’s business model and operating model. Selling merchandise under three banners (“Dirt Cheap,” “Treasure Hunt,” and “Treasure Hunt Building Supplies”), Dirt Cheap is focused on purchasing goods from insurance claims, manufacturer and retailer buybacks, closeouts, bankruptcies, overstocks, liquidations, customer returns and out of season goods. The company’s business model, therefore, is to offer items to its customers at an extremely low-cost (30-90% of retail) – the same items that their customers could normally find at Walmart, Target or other value retailers. Dirt Cheap offers a wide variety of products in its stores, including clothing, home goods, electronics and other hardline goods.
The operating model of the business is to procure merchandise from a variety of unconventional sources, in particular insurance salvage and customer returns, as cheaply as possible to enable passing those savings along to the customers of Dirt Cheap. This is key to both their operational and business models as their procurement staff buys bulk goods that have become “problem inventories” for retailers or insurance companies. Through finding these great supplies of merchandise (i.e. a retailer with a large amount of returned goods after the holiday season) Dirt Cheap can price the goods in its retail locations in line with the value it captured during the purchase. Their entire supply chain is then set up to handle inventories that other retailers cannot handle (like individual returns that may or may not work). The company then send the goods out to the various stores, refreshing the retail inventory and creating another reason for the customers to return to the store to see what new treasure may lie in wait.
In this sense, Dirt Cheap’s business model and operating model are fully aligned and self-reinforcing. Dirt Cheap provides an outlet for other retailers to liquidate items they cannot use (or are not set up to handle in terms of reverse logistics) and is able to obtain these goods at a bargain which they can then pass on to their customers. Additionally, due to the episodic nature of the way they procure merchandise, the inventory of Dirt Cheap stores is continually changing, driving high frequency among its customer base and a “treasure hunt” atmosphere in the stores. The unique way in which Dirt Cheap procures merchandise and the operating model that is set up around valuing and pricing bulk goods provides a sustainable advantage versus other value retailers. As many of the items are one-off or small batch returns, it would be very difficult for another retailer to do a similar function and therefore capture the value that Dirt Cheap does. These unique capabilities, therefore, are leveraged in the business model as the retailer can sell items for dramatically lower prices than their competitors. While Dirt Cheap is a private company, and therefore does not have financials available, the retailers continued store growth to 60 locations across the southeast over the last 25 years is testament to the alignment between its business and operating models. It continues to offer quality goods to its customers at extremely low prices – a strong recipe for great financial performance and sustainability.