Regardless of how healthy or how strong the US economy becomes in the New Year, the average consumer's desire for savings will not diminish in 2012. Even fully employed Americans have likely experienced a decline in home value, IRA or 401k. To make up for that loss, consumers have become vigilant when it comes to expending money.

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No Longer a Taboo
Shopping at dollar-discount stores used be viewed as taboo, a big no-no for any consumer except those who were struggling financially. The Great Recession has changed all that. More and more middle-class Americans make visits to places like Dollar General (NYSE:DG) and Dollar Tree (Nasdaq:DLTR). Since the beginning of 2009, sales of Dollar General have increased by over 30% to $13 billion in fiscal 2011. Profit growth has been even more impressive, growing from $100 million in fiscal 2009 to over $600 million in fiscal 2011, respectively. That type of growth comes not only from financially strapped consumers but also from employed Americans looking for savings. According to Dollar General management, they estimate that over 20% of their sales come from families earning over $70,000 a year. (For related reading, see The 4 R's Of Investing In Retail.)

No Longer a Fad
Even as the economy recovers, consumers will continue to patronize dollar-discount stores. The money consumers are saving today, buying things like toothpaste, paper towels and other household necessities, is habit forming. No one wants to go back and pay more for such items once they become used to the prices offered by places like Family Dollar (NYSE:FDO). The money-saving habits created by the recession are likely going to stay with consumers for a very long time. That bodes well for the share prices of discount retailers, who outperformed in 2011. Shares in DG, DLTR and FDO all increased between 10 and 50% in 2011 against a flat return for the S&P 500. Even the giant of discount retailers, Wal-Mart (NYSE:WMT), which outpaced the S&P with a near 10% return in 2011, still lagged behind the dollar-discount stores. Consumers are finding it easier to shop at smaller, more convenient dollar stores than to make the trek to a large, often-crowded Wal-Mart.

The Bottom Line
2012 will likely be a repeat of 2011 for shares of the major dollar-discount stores. Slowly and steadily, sales and profits will continue to grow as more consumers rely on dollar-discount stores for daily household necessities. And slowly and steadily, their underlying stock prices will rise.

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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.



Tickers in this Article: FDO, DG, DLTR, WMT

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