Did The Recession Create A Dollar Store Bubble?

A map of Family Dollar stores in the Philadelphia area. The chain hopes to open its 11,000th store this year.

A map of Family Dollar stores in the Philadelphia area. The chain hopes to open its 11,000th store this year.

Seven years ago, we were flipping houses with loans we received for passing the “Are you currently breathing?” underwriting requirements. Then it all collapsed and we transitioned from shopping at Neiman Marcus to the local dollar stores, which have ballooned in numbers due to a misguided belief that people will remain thrifty.

The Wall Street Journal has a story on the rapid growth — and possible downfall — of the dollar store industry in the wake of the recession.

The three major chains — Dollar General, Family Dollar, and Dollar Tree (apparently the only one that actually lives up to its name in terms of the prices) — are all continuing to expand, perhaps at their own peril.

Dollar General is planning to add 635 new stores this year alone — that’s more than 12 per week!! — and expects to cross the 11,000-store mark in 2013.

Family Dollar already has 7,000 locations and is coming off a year where it added 500 new stores, a number it hopes to repeat in 2013.

Meanwhile Dollar Tree expects to tack on another 200 or so stores to the 4,400 it already has.

The big question is whether or not there will be a demand for these stores once they’re all opened.

Even Walmart has lost customers to bottom-dollar retailers, though it plans on investing $1 billion in price cuts this year to bring those shoppers back.

And even if people continue to shop at dollar stores, some market-watchers believe that cash-strapped consumers will go for the low-margin grocery products rather than the higher-margin items like clothing and toys that have long been dollar stores’ source of profit.

The chains are making moves that could pinch those margins even tighter. Family Dollar has spent money adding more brand name items and putting in additional refrigerated displays for groceries. In spite of its bargain-barrel sounding name, Family Dollar says it was to “appeal to the higher end” of the consumer spectrum.

Meanwhile, Dollar General is cutting prices and spending cash on advertising, at the same time as customers are buying fewer items.

“It’s as if there are more days than there are dollars,” the company’s CEO told investors in December about Dollar General’s not-so-wonderful holiday sales numbers.