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They sell things that are discontinued or overstock from other stores.
If Store A decides they aren't going to still widgets anymore but have a warehouse full if them they will sell them to Big Lots for cheap and who then sells them for (typically) less that they cost at Store A.
Wait, so it's a store that exclusively sells things that nobody wanted to buy in the first place? Wow, in that case I'm surprised it's taken them this long to go out of business.
A lot of times it's seasonal, for example, in the spring and summer a store might stock a lot of patio furniture and grills, and maybe they were solid sellers all season, but come fall they still have some leftover, and not as many people are going to want them in winter, and now they need that space in store to sell Christmas lights, so they have to do something with those leftover grills and lawn chairs.
So they can either warehouse them themselves, and try to sell them again next year, which might mean added shipping costs from the store to the warehouse and back again in the spring, and also takes up space in their own warehouses that they might need for other stuff, or they can sell them to an outfit like big lots and just order a new batch the next year and not have to deal with all of that.
Especially if that item is now discontinued and they won't be able to restock the exact same grill (or whatever) next year, or maybe their contract with that manufacturer expired and wasn't renewed so instead of stocking Weber grills they're going to have Blackstones next year.
Sometimes stuff does end up there because people didn't want it, but often the real issue is they didn't want it at the full MSRP, but maybe they do want it at the discounted price big lots can sell it at. Of course Walmart or whatever store it came from could sell it at that lower price themselves, but if the Bean counters determine that they could make even more money by getting it off their shelves and replacing it with the new merchandise, that's what they're going to do.
Or sometimes it might be stuff with damaged packaging, open box returns, or cosmetic defects that they didn't want to put on shelves.
If you've ever gone to an outlet store, it's basically the same idea- discontinued, overstocked, last season, etc. merchandise, except it's all coming from one brand instead of stuff from many different sources going to the same place, and the stores are probably a bit nicer because that brand is using it for advertising and protecting their image.
Places like TJ Maxx, Marshalls, and Homegoods are also basically the same thing.
And honestly, there are some really good deals to be had. There's a "Half Off Store" near me which is a similar liquidator/overstock store that I believe sources most of their merchandise from target, and I've seen and gotten some pretty good deals there. It's always hit-or-miss what they have in stock, which is to be expected, but they usually have some decent robot vacuums, some small kitchen appliances (even some moderately higher-end brands,) etc. at pretty deep discounts, usually they're just last season/years models, or the packaging is a bit beaten up.
You can't really go shopping at these places with the idea that "I'm going to buy this specific brand and model" but if you go with a general idea like "I need a food processor" you'll probably find one that will do what you need. Or if you just stop in and walk around and see if anything catches your eye.
The half off store is next to a restaurant my wife and I like, so whenever we go there for dinner we walk around the store first and sometimes we find something we need/want, sometimes we don't. We got a fancy trash can there once that sells for like $150 normally for about $60, box was a little banged up but the can itself was fine. My wife had been looking at a similar can from the same brand for her office, but didn't want to spend that kind of money right then, I think this one was slightly bigger than the one she was looking at, but she decided she could live with that since it was half the price.
We also get a lot of dog toys there, she's gonna tear them up and rip the stuffing out regardless of how much it cost, and as long as it's fuzzy and squeaks she's not picky, so we might as well save a few bucks.
I don't know now, but when I went there years ago they sold a lot of food items. There would often be really good things like canned tomatoes by a quality brand you only see in Italy, stuff you would need to go to a specialty store for. A friend loves seasonal candy and would stock up on Peeps, etc. Also good for toothbrushes in weird colors, and tie in items from failed movies.
Edited to add: the one near my old place was ghettofabulous and was often an entertaining place to see novel shoplifting tricks and parking lot fights.
That's a hilarious perspective to put on it.
Even more puzzling is that there's stiff competition in this market. TJ Maxx, Homegoods, Ross, Marshalls, and Sierra Trading all have the same business model and sell mostly all the same shit. In my city, literally all those stores are right next to each other in a mall with Big Lots a mile down the road.