Dollar Stores fascinate me but I know very little about them. Here we go with a lot of speculation ...
I first discovered dollar stores in depressed sections of New Jersey, where most buildings looked old and in need of repair, many store closures were evident, and there was little evidence of rebuilding. (There were many such areas in NJ in the 1970's and early 1980's. Most of these places are bustling with development now.) The first dollar stores seemed to rise up just as the old "five and dime" stores were dying. Unlike the five and dimes, they truly offered products selling for a dollar or less.
Some of the merchandise in these first dollar stores was decrepit, but I could usually find something interesting or a bit of food to buy. But today there are dollar stores everywhere, and their merchandise has improved. I suspect that buying power is an important factor. The early stores proved the "Dollar Store Concept" and then other people figured out how to set up large chains, buy remaindered stock in large quantities and benefit from lower wholesale costs. There may even be factories in China devoted to manufacturing dollar store products.
I suspect there's still a stigma to patronizing these stores. I've never seen one full of customers, except for the dollar stores in big cities.