Investing in Discount Retail Store Stocks

Leading discount stores are Dollar General, Dollar Tree, and 99 Cents Only Stores. Past investment strategies have always called for investing in growth if you're still 10 or 15 years away from retirement; then invest for income when getting closer to retirement age.

However, the days of continual growth year after year may not come back around for a long time. My financial advisor told me that he expects the next 7 years to 10 years to be a somewhat rough ride financially.

Why Invest in Discount Retail

Discount retail stores provide easy-to-purchase necessities that are consumed daily. The products may not be glamorous, but practicality has a nice touch when looking for return on investment.

Cash is king in the discount retail world. People don't need a credit check to buy school supplies or office supplies for a few dollars. The stores also carry brand name items that are trusted and sought after by shoppers.

Discount Retail Business Model

The business model is simple: carry useful products, in convenient locations, at affordable prices.

Dollar General has 9,000 stores in 35 states as of August 2010. They can serve communities as small as 4,500 people where real estate and labor costs are low. Their stores may only need 6 employees to 10 employees to manage daily operations. The company states, "We make shopping for everyday needs simple and hassle-free by offering a carefully edited assortment of the most popular brands at low everyday prices."

Dollar Tree has stores located in shopping plazas and shopping malls in all 48 contiguous states. The company describes itself as "a store where entire families can enjoy hunting for that special something. Every Dollar Tree store is bright and well lit, clean and well organized, and stocked with endless hidden treasures!"

99 Cents Only Stores has fewer stores in a more limited area with 271 stores operating. 202 of those stores are in heavily populated California. The others are in Arizona, Texas, and Nevada. For fiscal 2009, total sales for 99 Cents Only Stores reached $ 1.3 billion. Average net store sales were $ 4.6 million which the company believes is the highest per store profit in the industry. 99 Cents Only Stores offers "customers significant value on their everyday household needs in an exciting shopping environment."

Record 2010 Results

Dollar General reported record 2^nd quarter 2010 earnings. Overall sales grew 10.8% while sales from the same stores in 2009 grew by 5.1%.

Dollar Tree reported record 2^nd quarter 2010 earnings with comparable same store earnings increasing by 6.7%.

Executives from both companies are positive about the third and final quarters for 2010.

The fiscal year for 99 Cents Only Stores ended March 27, 2010 with $1.35 billion in sales with 275 stores, compared to $1.3 billion in 2009 with 279 stores. In 2008, the company recorded $1.19 billion in 2008 with 265 stores.

For fiscal year 2010, earnings per share for 99 Cents Only were 87 cents.

While all investment has risk, the business models of the discount retail industry leaders is proven effective: products people need that get used up, affordable prices, and a pleasant shopping experience.