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Dollar Stores: Are You Getting What You Bargained For?

Published: Tuesday, 14 Jul 2009 | 3:41 PM ET

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By: Christina Cheddar Berk
News Editor

Lots of new customers are trying out discounters and dollar stores in order to trim their budgets during these tough economic times. But a debate rages about whether those shoppers — often from higher income brackets than traditional dollar store customers — will stick around after the economy rebounds.

A key thing to consider when weighing the question is whether those consumers are getting what they bargained for.

Mish Bradley
Family Dollar is just one of several dollar store chains that have seen increased traffic from bargain-hungry shoppers.

As far as dollar stores go, the answer seems to be this: It depends.

Consumer Reports' ShopSmart magazine sent out secret shoppers to a number of dollar stores, discounters and drugstores, in order to compare prices and check the quality of the merchandise. What they found, says Editor-in-Chief Lisa Lee Freeman, was that dollar stores aren't always the best deal, and in some cases, the products they sell are not even safe.

Freeman says the magazine found the biggest deals on products such as aluminum foil, gift wrap, cotton rounds to remove makeup, and party supplies. But steer clear of tissue paper. It's more expensive at the dollar stores.

Other items, including composition notebooks, paper plates, and napkins were priced at about what other discount stores were charging. So shoppers weren't getting a big bargain, but they weren't spending more than they would at a Wal-Mart [WMT Loading... () ] or Target [TGT Loading... () ] either.

But ShopSmart warns shoppers to avoid products like vitamins, aspirin and other medications, kids' jewelry, tiki torches, lighters, and electrical products.

According to Freeman, some of the medicine and vitamins encountered by secret shoppers were past their expiration date, while some tiki torches burned out of control. Some extension cords, lamps and other electrical items may have had fake Underwriters Laboratories labels in an attempt to suggest they had been tested by the UL for safety.

One of the magazine's secret shoppers found a novelty lighter that could be mistaken for a toy on shelves within arm's reach of small children. Making matters worse, the lighter did not have a "child-proof" latch.

Buyers should beware when shopping for toys and party favors for children at dollar stores. Many of these items have small parts that may become lodged in a child's throat.

Investors in the stocks of dollar stores also may want to heed similar advice. Although the trends have been very good for dollar stores, investors are well aware that these retailers can be more resilient in recessionary times. That means these stocks may not be cheap.

Stocks could see more staying power if consumers shop the dollar stores, like what they see and keep coming back for more. Seeing a true post-recessionary shift in the customer base would change the dynamic of these stocks considerably.

Dollar Store Stocks: