Economic woes tighten holiday spending at dollar stores

Economic woes tighten holiday spending at dollar stores

Season's spending could be lowest in 5 years, a backlash of housing slump

Wandering down an aisle of Christmas decorations, gift boxes and serving ware last week at the 99¢ Only store in Sacramento's College Greens neighborhood, Tamera Barr had yet to pick up any merchandise.

The Sacramento mother of two said she was just looking in preparation for the holidays and would only purchase something if she found "something we can't live without."

Barr said she's mindful of the economic downturn, higher gas and food prices, her family's need for a new roof and college expenses for her son.

"I'm just planning to be a little bit more conservative," she said a week before the official start of the holiday shopping season.

Barr is not alone. Spending at dollar stores nationwide this holiday season is expected to grow by 2 percent, down from 2.8 percent growth for the holiday season last year, according to a forecast by retail consultancy and market research company TNS Retail Forward Inc. That projected growth is less than what TNS Retail Forward forecasts for the national retail market overall: 3.3 percent growth instead of the 4.6 percent retail holiday growth in 2006.

Retail holiday spending this season is "expected to be the weakest in the last five years," said Ayuna Kidder, TNS Retail Forward economist and consultant. The culprits are the ripple effect from the housing slump and subprime mortgage fallout, higher gas and food prices, and falling consumer confidence.

One would think that these deep discount stores, where nothing costs more than a buck, would benefit in this environment. But the primary customers of dollar stores -- poor people -- are among those hardest hit in this economy, Kidder said. That, combined with dollar stores' intense competition from discounters such as Wal-Mart and extreme-value grocers such as Costco, leaves dollar stores with a less-jolly forecast than the retail market overall.

Kidder doesn't think consumers' concerns over the safety of toys and other goods coming from China are much of a factor in dampening holiday spending at dollar stores. It will take months for dollar stores to feel the full effect of the China sourcing scare, she said.

At the 99¢ Only store in College Greens, store manager Martha Freire and Adam Tourville, who trains store managers throughout Northern and Central California, insisted they were confident about the store's holiday season.

"December's definitely our biggest month," Tourville said. "The holiday season is very, very important to our company."