Economy Watch - Dollar Stores Still U.S. Retail Winners

Dollar stores, one of the few categories of retail winner during 2009 (besides Wal-Mart), keep piling on the positive numbers. Dollar General Co. reported numbers for its second fiscal quarter on Thursday, turning in 8.6 percent increase in same-store sales compared with 2Q08. Its quarterly net income increased 238 percent.

The Goodlettsville, Tenn.-based discount retailer is also in the unusual position of being about to increase the rate of its expansion, news that ought to brighten the day of the lucky few retail property landlords that land new Dollar General stores, which are “small box” (according to the company’s terminology), averaging about 7,000 square feet. The company has roughly 8,570 stores now and plans to open 500 new stores in the 12 months, up from previous plans for 450 stores, and it will remodel or relocate 450 stores, up from 400 previously planned upgrades.

Dollar General’s capital expenditures for such expansion/upgrades will be about $325 million. It will not likely be short of funds, either. Current owner Kohlberg Kravis Roberts & Co., which is based in New York, will soon oversee an IPO for the company, taking it public again.

The company attributed its successes to the very market conditions that are driving middle- and carriage-trade retailers around the bend: U.S. consumers, on the whole, are poorer than they used to be. Americans’ real median household income -- half earn less, half more -- dropped 3.6 percent from $52,163 in 2007 to $50,303 in 2008, according to new data from the U.S. Census Bureau. It was the first decline in three years and the sharpest decline in the first year of any recession since World War II.

That median income drop represents more than an increase in unemployment since the beginning of 2008, though that’s an important component. Full-time working men saw their incomes fall 1 percent last year, while full-time working women experienced a drop of 1.9 percent, according to the Census Bureau.

U.S. home foreclosure filings were down slightly in August from July’s record high, according to Irvine, Calif.-based real estate data specialist RealtyTrac. Filings, which for RealtyTrac’s purposes include notices of default, auction and bank repossession, were up 18 percent in August 2009 compared with the same month last year. In July 2009, filings were 19 percent higher than a year ago. By the end of 2009, RealtyTrac predicts, about 3.4 million households will have received a filing at some point in the year, a large increase from the 2008 total of 2.3 million.

That won’t be the end of the foreclosure wave, either. Fitch Ratings, dual-headquartered in New York and London, reported earlier in the week that about 70 percent of $189 billion worth of outstanding option ARMs will reset either next year or in 2011. Option ARMs, popular during the peak days of the housing bubble, were a special breed of mortgages the likes of which may not be seen again. For a certain period, borrowers with option ARMs could elect to pay less than the interest due on the loan, a speculative play if there ever was one. Eventually, however, under such a scheme, the borrower has to start paying standard mortgage repayments, under a “coming home to roost” clause.

The option ARM defaults won’t quite be on the scale of subprime resets, since option ARMs represent only about 1.3 percent of all residents mortgages. Still, the resets and the subsequent defaults will probably amount to another log on the foreclosure fire to help give it a warm glow throughout 2011.

Wall Street started down on Thursday, but eventually turned into positive territory. The Dow Jones Industrial Average was up 80.26 points, or 0.84 percent, while the S&P 500 and the Nasdaq gained 1.04 percent and 1.15 percent, respectively.

- Nielsen Business Media
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