There are four reasons a dollar store is able to sell merchandise at such a low price:
1. The product is a generic or "knock-off", often specially manufactured for such stores.
2. The product was manufactured cheaply for a foreign market but was then imported by an unauthorized distributor (grey market goods).
3. The product is purchased from another retail store or distributor as overstock, closeout merchandise, or seasonal merchandise at the end of the season.
4. The items were manufactured to coincide with the promotion of a motion picture, television show or special event (e.g. Olympic games), and are past their prime.
http://en.wikipedia.org/wiki/100-yen_shopDaiso sets itself apart from other 100 yen shops by choosing not to sell closeout or factory second merchandise. Instead they keep prices low by purchasing directly from manufacturers in very high volume, a strategy often compared to Wal-mart. While the prices are low, and in many cases identical items are sold for more elsewhere, in some cases the quality reflects the low price.
Daiso often uses such locations as disused pachinko parlours for its retail outlets. They spend a lot of money on shelving and fixtures to help the stores compete with more high-end retailers. The stock of items retailed at each shop is varied frequently in order to increase repeat customers.
http://en.wikipedia.org/wiki/Daiso
