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What's the deal with dollar stores?


The Mighty Rise of the Dollar Store
Customers await the grand opening of a Dollar Tree in Taft, Calif., in 2008.
Customers await the grand opening of a Dollar Tree in Taft, Calif., in 2008.
David McNew/Getty Images

­Deep­-discount retailers suffer during sound economic times, when consumers have more money in their pockets -- or have more credit available to them. As a result, dollar stores end up losing customers to larger, more expensive stores that offer nationally recognized brands. During an economic downturn, however, thriftiness becomes more appealing and sensible. Dollar stores' coffers are replenished as consumers start searching for cheaper items.

In fall 2008, as the economies of many nations worldwide were tanking, shareholders and executives of dollar stores had cause to rejoice. The highest-performing stock of 2008 among the Standard and Poor's 500 stock index was Family Dollar (FDO), which rose in value 42 percent while the index as a whole declined 37 percent [source: USA Today]. That means that a dollar store chain bested S&P 500 companies with names like Apple, JPMorgan Chase and FedEx.

Soap and other products that inspire brand loyalty can be hard sells for customers when they're flush with cash. But when prices increase in conjunction with an economic downturn, as they did in fall 2008, brand loyalty loses to sensibility [source: WSJ]. As a result, the stigma attached to shopping at dollar stores decreases. Since we're all poor at the same time and for the same reasons, frugality comes into vogue. In November 2008, a New York Times food critic wrote an article on spending a week creating gourmet meals with groceries he found only at the dollar store.

Economic downturns also add to the success of dollar stores across the industry through massive liquidation. When shoppers become more frugal in an unstable economy, discount retailers pick up merchandise as well as new customers. Big retailers that go under or close stores during hard times sell their inventory -- often at a discount -- to recoup costs. Dollar store chains snatch up the liquidated inventory and sell it at an even deeper discount to their customers -- the same customers that abandoned the big retailers.

In general, dollar stores keep prices low through cost-cutting measures. Dollar Tree, the only national chain that sells items for a dollar, cuts costs by selling items in smaller sizes and spreading out deliveries through the week [source: JExpo]. Other chains and independent stores have taken to selling some merchandise for one dollar and others, like national brands, for near-traditional retail prices. And some items, like big-ticket electronics, simply aren't found in dollar stores unless they've been liquidated as part of another company's stock. Once items like these are gone, they're gone, which can make shopping for these particular items at dollar stores a hit-or-miss proposition.

Major discount chains also keep costs down by importing a lot of their merchandise from China and other countries. Consumer Reports pointed out several types of products that dollar store denizens should avoid. Things like knock-off batteries (like Dinacell) that leak acid, lead-laden children's lunchboxes and unsafe electrical products that aren't Underwriters Laboratories (UL) listed are all to be avoided [source: Consumer Reports]. Product safety, unlike brand loyalty, shouldn't go out the window during economic crises, which is why you shouldn't do absolutely all of your shopping at dollar stores.


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