•Are coming off turnarounds. To some degree, dollar stores have weathered their tough times. When consumers were feeling rich, tapping credit and home-equity lines, dollar stores suffered and were forced to tighten their belts.
At 99 Cents Only, for instance, the chain has undergone a multiyear restructuring that has included pulling out of Texas. It also recently raised its prices and is charging 99.99 cents for everything in the store, up from 99 cents even. That 1 cent extra might not sound like much, but it's a blanket 1% price increase. Now, with foot traffic rising, many of the steps the stores took in difficult times are paying off. For instance, 99 Cents Only used to sell six-packs of Shasta soda for 99 cents. Now, it sells four-packs for 99.99 cents, Ragan says. "It's still a good value relative to the grocery store," he says.
Not all discount stores are thriving equally. While Big Lots' stock is still up 5% this year, it has lost half its value since August. On Nov. 6, the company reported sales at stores open at least two years slid 0.2% during the third fiscal quarter.
But overall, dollar stores should be more insulated to a slumping economy than other retailers. Even if the economy mends slightly, consumers will hardly feel rich, says Bernard Sosnick of Gilford Securities. If consumers have extra money, they're likely to consider buying some of the more discretionary items sold at the dollar stores, such as snacks or apparel, he says.
Consumers have been adequately frightened by the implosion of home prices, skyrocketing gas prices and rising unemployment that they're unlikely to return to their cash-burning ways just yet, says Patrick McKeever of MKM Partners.
"It takes awhile to change shopping behavior on the way down and on the way up," McKeever says. "People have been burned. The free-spending years are gone."