Shoppers at Lucky Treasure Hunt in Moreno Valley, California, always know what day it is. Friday means a fresh new stock of merchandise and a $10 price on any item, from a pair of designer jeans to a leaf blower to an automatic pet feeder. By Monday, the price for the same goods, or at least the ones that are left, is down to $3.

But while shoppers always know the price, based on a daily decelerating price model, they never know quite what they’ll find. The thrill of the treasure hunt is a big part of what’s feeding a proliferation of bin stores that include Mystery Bins, Hotbins and Where Ya Bin, among hundreds of others.

Consumers have chased good bargains for a long time. Plenty of major retailers have cashed in on that trend, from Filene’s Basement to T.J.Maxx and from Costco to Nordstrom Rack. “There’s just a ton of demand for these types of experiences,” said Avison Young principal and director of retail market intelligence Meghann Martindale. Some people like the search for that “diamond in the rough,” while others look for cheap prices more out of necessity, she added.

The other key ingredient fueling expansion of bin stores is a surge of excess inventory coming from overstock, merchandise returns and tough-to-sell inventory that retailers need to liquidate.

According to the National Retail Federation, the total return rate for retail purchases made in the U.S. last year was 14.5%, which amounts to roughly $743 billion in merchandise. Online sales’ share of returns reached a higher percentage: 17.6%, or $247 billion.

“When you think about the major retailers like Amazon, Walmart, Target and dozens of others, it’s expensive to sort through returns, repackage them, restock them and resell them, potentially at the risk of having yet another return,” said Martindale. “So from the supply side, it has made sense for a lot of these large retailers to just bulk sell bins or pallets full of product.”

Bin stores are benefiting from retailers’ reverse logistics problem, agreed Matt Rothstein, principal and owner of Pretium Commercial Brokerage in Atlanta. He specializes in value retail tenant rep. In some cases, a customer might receive a package that looks damaged and they don’t even want to open it, so they send it back even though the product inside is perfectly fine. “It’s getting very costly to return something, and some retailers would rather write off those returns than putting it back on a shelf somewhere,” he said.

Returns destined for bin stores ship to warehouses around the country, make it onto pallets and then are resold at a discount to liquidators by the truckload. “It’s not like someone is ordering 50,000 pairs of shoes,” said Rothstein. “It’s a random assortment of different items.” However, it’s not necessarily a bunch of “cheap stuff,” he said. Items can include name-brand electronics, sporting goods, toys and apparel.

Outsize Opportunity for Bin Store Operators

That overstock creates an opportunity for bin store resellers to sell deeply discounted items. Although some small chains are emerging, most are single-store entrepreneurs. Many operate with a descending pricing model in which the price goes down each day of the week. Ideally, everything has been liquidated before new shipments arrive by the end of the week. To drive traffic, they rely on social media rather than formal advertising.

Bin stores are by no means a new phenomenon. “Every time there’s an economic downturn or a major change in economic or retail trends, you’ll see some form of bin stores appear, and they don’t always fall under the label ‘bin stores,’” said Terry Bortnick, a principal at Axiom Retail Advisors in Los Angeles.

The pandemic was a key catalyst for the recent trove of bin stores. Physical stores shut down for a period, online shopping and thus online returns spiked and supply chain disruptions delivered a surplus of inventory. In some cases seasonal inventory arrived during the wrong season. It added up to a large volume of excess merchandise, and retailers unloaded it at discount prices. Bortnick saw a huge acceleration of interest from bin store operators following COVID. “I was getting calls on my centers, sometimes three or four times a day, from people saying: ‘I want to open a bin store,’” he said. “That has really leveled off because a lot of those spaces were taken, the merchandise is getting harder to get and people are just not quite as excited about it as they were.”

He represented the landlord of California’s Merino Valley Plaza in a lease to Lucky Treasury Hunt about three years ago. “She came in and has done a really nice job, but her sales are definitely down from when she opened back in 2021 because the novelty has worn off a bit,” he said. “And there’s been so many of these stores that popped up so quickly that they’re all fighting for the same inventory, and so the prices have gone up.”

Solution for Hard-to-Fill Spaces

Given the low price points, most bin stores look for no-frills, cheap space with ample parking. They like the synergy of locating next to thrift stores and other value-priced retailers, but because bin stores are destinations for shoppers, they can go into B or C retail centers or even industrial spaces.

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Rothstein represents Black Friday Deals & Discounts, a bin store operator with 40 locations in cities like Chicago; Columbus, Ohio; and Charlotte, North Carolina. He finds that landlords can hesitate to lease to bin stores because they don’t understand the model or they’ve had a bad experience with a poor operator in the past.

The upside for landlords: Bin stores can drive a lot of traffic, and most require minimal tenant improvements, often taking space “as is.” That allows property owners to create cash flow with very little risk. Bin stores’ space requirements also are flexible, and they can take that hard-to-lease “elbow space” that most tenants don’t want, added Rothstein. Black Friday Deals typically looks for 15,000 to 40,000 square feet. However, some operators can take smaller spaces.

Sustainable Business Models?

Opinions are mixed on whether the latest bin store craze has staying power. As in any sector, early movers have an advantage over operators that jumped in later. “This trend of bin stores will likely continue to grow, but there are some risks, including a lack of direct relationships with the retailers whose products they sell, inexperienced store operators and pricey rents, considering the small margins in this business,” said Josh Schmidt, a first vice president in CBRE’s retail tenant services group for the Pacific Northwest.

Bin stores face some tough challenges, including an increasingly competitive market, low margins and rising rents. “As it has expanded and grown, you get to that cannibalization factor, where if you’re all buying the same stuff, you’re oversupplied with these stores in the market and you’re not necessarily getting better merchandise,” said Martindale. Competition for overstock also could drive up prices and make inventory more difficult to source.

In addition, retailers are looking to solve the financial problem of merchandise returns. If they do, bin stores’ supply would dissipate. One option for retailers is to create their own bin stores, similar to a Nordstrom Rack or Macy’s Backstage. Although the bin stores Schmidt sees on the West Coast are run mainly by independent operators, he believes retailers themselves could enter the mix. “If you think about certain discount retailers and how they sell overstocked or offseason items, there might be others doing similar things that could incorporate returned items, as well,” he added.

Rothstein doesn’t see online retailers, though, coming up with a solution to the return problem anytime soon. In his view, bin stores are the solution.

He encourages landlords to understand how any individual potential bin store tenant operates, as not all models are the same. “As these operators are continuing to evolve and they want to expand into more established centers with more nationally recognized tenants, they’re changing their product mix a little bit,” he said. In addition, some are combining the bin concept with wholesale liquidation assets, which involves reselling overstock by the truckload. It’s a case-by-case basis depending on the operator, he added.