Over the past few months, Mississippi-based “extreme value” retailer Dirt Cheap has closed 13 of its 15 remaining Texas locations. In an article released by The Marshall News Messenger back in April, Channel Control Merchants (the owner of Dirt Cheap) informed the employees of their Marshall-based warehouse that the company would shut down its Texas warehouse and all but two Texas stores by May. This news shocked some as Channel Control Merchants was on an expansion kick over the past few years after an investment from KKR in 2015. For those not in the know, Dirt Cheap’s merchandise consists completely of salvaged merchandise from other retailers. Mostly, these are returns and occasionally a bit of overstock from Target, Sam’s Club, Walmart, Amazon, Home Depot, or Lowe’s. However, my first experience visiting Dirt Cheap ended with purchasing old Blockbuster and Toys R Us inventory, showing how versatile their selection tends to be. The merchandise selection at Dirt Cheap is constantly changing, and you can’t ever go in expecting to find the same item twice. The store is true to its name in more than one way. Things are indeed cheap; I purchased a relatively high-end router there for a fraction of the list price ($29.99 vs. $129.99); however, things are also Dirt(y). These items generally come from stores with liberal return policies, and the quality reflects this. Power Tools that are “rented” via purchase and return tend to end up here along with things like vacuums, where less than honest customers return their older vacuums in the box of newly purchased models. Sometimes it’s apparent that clothing has been worn and occasionally will be dirty (pit stains or worse). The selections on the shelves include questionable returns like used or at least opened cosmetics, lotions, and sometimes even medicines. On top of this, the stores are absolutely filthy. While not all merchandise is necessarily of this caliber, Dirt Cheap was not a place for looks. I have to say I found better deals with them than Goodwill, but bringing some rubber gloves to the store with you would be wise.
So now that we’ve picked apart the company, what seems to have gone wrong for Dirt Cheap in Texas? Well, it seems to be a combination of factors. Dirt Cheap first came to Teas in 2013, landing way down in Del Rio. In 2015 private equity firm KKR who we know pretty well in Houston, invested in Channel Control Merchants. Dirt Cheap’s initial reception was quite positive, the rural Texas market seemed to appreciate the fact that they could buy Target products in small towns where Target wouldn’t open up in a million years. This reception would stoke the fire for expansion in Texas, building the chain up to 25 locations within the state by the end of 2018. This expansion would also include acquiring a similar but smaller company named CA Liquidators, operating out of California, and creating a sister company named CCM California in 2016 to focus on expansion there. The first issues encountered can be traced back to the California stores. While CA Liquidators had initially operated out of a huge non-air conditioned warehouse, CCM would make a move to open two more traditional locations. These were under their slightly more upscale (and cleaner) Treasure Hunt brand in Fontana and Indio (in a recently closed Target). Essentially according to online reviews, customers were deeply disappointed with the concept. Customers in California seemed to have a large aversion to purchasing open or otherwise obviously returned products. Beyond that, customers who knew what they were getting into seemed to be annoyed by the lack of organization which came with the scope of CCM’s stores. These issues led CCM to close its two California stores in 2020.
While some of these sentiments did seem to be present with Texas shoppers, they didn’t seem to be to the same degree. A couple of closings in 2020 and 2021 seemed to be related to lacking customer demand. Although overall, customers accepted the Dirt Cheap model. The worse blows seem to be related to how CCM acquires its merchandise. The availability of salvage merchandise seems to be diminishing with increasing competition and changes to company policy. With competitors like Ollie’s willing to pay higher prices and “chains” like Black Friday and other Amazon return stores popping up with customer engagement which Dirt Cheap just can’t keep up with, the market in Texas has become extremely crowded. Chains like Crazy Boss also prove problematic, snatching up clothing, which makes up a good portion of the total sales floor space. (Crazy Boss even took over one of the former California stores) Increased competition, lacking supplies, and a tightening of return policies, along with better policing of items, have all likely had a tremendous impact on the way Dirt Cheap does business. While two Texas stores remain open, it’s likely that Dirt Cheap is entering a period where they need to bunker down a bit. They do seem to have found some success with Dirt Cheap Building Supplies, a DIY Closeout Store patterned after Dirt Cheap’s method (although they do seem to carry some merchandise consistently, gloves, tape, etc…) While it’s certainly possible that we could see Dirt Cheap try to expand its Building Supplies chain here, it’s really too early to make any sort of predictions. One downside to the store closures is they are likely considered a bit of squandered investment by KKR. Especially with the retrofitting of the Marshall Distribution Center for use by Dirt Cheap, it’s certainly possible CCM could be put up for sale in the future.