Midday Market Minute: Dollar Stores Start to Feel the Pinch

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During the Great Recession, business was strong for the nation's extreme discounters. Dollar General (DG), Dollar Tree (DLTR) and Family Dollar Stores (FDO) were investor favorites, and all three undertook aggressive expansion. Now, however, The Wall Street Journal reports that their burgeoning numbers of outlets may become problematic, as the prospect of market saturation in a still-tough economy looms.

Family Dollar, which currently has more than 7,000 stores, reported a quarterly profit that failed to meet expectations Thursday. The chain expects to add around 500 new locations this year.

Meanwhile, Walmart (WMT), the world's largest retailer, is said to be "hellbent on winning back shoppers that it lost to dollar stores during the recession," and according to the Journal it's willing to spend $1 billion a year to lower prices towards that end.

The recent expiration of the federal payroll tax deduction is squeezing already-strained budgets, meaning that even dollar store items (beyond the essentials) are out of some consumers' reach. Family Dollar's strategy is "to appeal to the higher end," said a company spokesman, through renovations, named brands and added products.


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