Last week, we posted a seemingly innocuous excerpt from the NY Times about how dollar stores are thriving in the weak economy.
Got lightning fast feedback from a loyal Homa Files reader that an opinion to the contrary appeared in the WSJ:
Dollar stores have been all the rage in these penny-pinching times. But their growth prospects may be dimming.
The discount space is looking increasingly crowded. The three-biggest dollar stores, including Dollar Tree Inc., already have roughly a combined 20,000 locations in the U.S.
More troubling, the squeeze on dollar stores’ core, lower-end shoppers, is getting worse.
That is likely to put pressure on margins. Bargain prices on food, drinks and other “consumables” may get customers in the door, but discount retailers rely on higher-margin discretionary purchases for profit growth. Sales in the fiscal fourth quarter were strongest in the low-margin consumables category.
A weak economy mightn’t turn out to be quite the gold mine for dollar stores that many investors seem to think.
WSJ, Weak Economy Saps Dollar Stores’ Strength, Sept. 29, 2010
http://online.wsj.com/article/SB10001424052748704791004575520322560873584.html
Googling the topic revealed a debate in process on the topic.
Most notably, Jim Cramer – who has apparently been touting dollar stores on Mad Money – responded immediately to the WSJ story. His verbatim comments:
“Never ever let a negative headline scare you out of the stock with a good long term story.
Case and point, last week the Wall Street Journal ran what may be the most absurd headline I’ve seen in ages, “Weak Economy Saps Dollar Stores’ Strength”.
I thought it was a comedy routine since Dollar Stores do well in a weak economy as a cash strapped consumer trades down the cheap stuff…..”
http://www.madmoneyrecap.com/madmoney_nightlyrecap_101006_3.htm
Ken’s Take: Dollar stores are either thriving or hurting … or just keeping pace … who the heck knows.
Thanks to RMM for feeding the lead
The Homa Files 
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