Dollar stores' growth cooling

AP reports that sales growth has been down in the previously hot dollar store category:

Family Dollar's profits have been lower in each of the past four quarters, and the company recently lowered its expectations for both sales and earnings for 2006. The company, which has nearly 6,000 stores in 44 states, had sales last year of $5.8 billion, but earnings were down to $217.5 million from nearly $258 million in 2004 — a drop of nearly 16 percent.

The company's rivals aren't doing much better. Last week, market leader Dollar General said its third-quarter earnings were off by 9 percent from the same period a year ago. The Tennessee-based chain said higher transportation costs and other expenses cut into its profit. On the same day, Dollar Tree, based in Chesapeake, Va., said its quarterly income was down 2 percent; it blamed sluggish customer traffic.

What is strange about the report, though, is to see AP blaming the problems on a bad economy.

That success, however, has been challenged in the past year by the financial woes of its best customers, primarily low-income workers and families earning $25,000 a year or less. Struggling with layoffs and higher energy bills, they've found themselves without enough cash for a shopping spree at the nation's deep-discounters.

That explanation seems strange on two levels. One is that the economy is doing great (growth is currently running at about 3.6%), and the other is that the lowest-priced categories of retailing should benefit when the economy is down. Doesn't it seem more likely, then, that the dollar stores are hurting because the economy is doing well?