When Dollar Stores Are Too Expensive

[Purveyor]

By Annie Lowrey
Slate.com

When he was Fed chairman and had access to the best economic data and minds on the globe, Alan Greenspan famously liked to forecast the direction of the economy by studying sales of men's underwear. Even during the best of times, underwear purchases remain pretty flat, he noted. (What dude who has just gotten a raise thinks: "Ah yes! I'll upgrade my entire collection of briefs now!") Only during the worst of times — when people are really, really cutting back — do boxer and brief purchases drop off.

The reverse logic usually holds for America's dollar stores. Customers flock to the chains, which sell thousands of products for a buck or $2 or $10, when times get tough. When the economy improves, they shop at nicer outlets, like Target. But there are some worrisome signs that the prolonged economic malaise has changed even this retail paradigm. Middle-class households remain reluctant to spend. And cash-strapped consumers are finding even dollar stores a bit too expensive.

To be fair, Dollar Tree, Dollar General and Family Dollar, the three big national chains, all posted strong profits in the first quarter of the year, the last for which data are available. That is not just because they are opening new stores but also because same-store sales have continued to grow as more and more customers trade down.

Nevertheless, all three reported ominous data in the past few weeks. The Wall Street Journal noted that two of the three missed earnings targets. And the companies' investor notes report that customers are buying fewer discretionary items, like hand lotion and decorative goods, and more "consumables" and household items, like toilet paper.

MORE...

http://www.msnbc.msn.com/id/44036265/ns/slate_com/