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Prices up? Off to the dollar store

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Renita Jablonski: Dollar Tree, the nation’s largest dollar store, releases earnings today. As prices for food and consumer goods rise, more and more people are cruising the aisles at dollar and 99-cent stores. But as Alisa Roth reports, the same inflation bringing in more customers could spell trouble for these stores down the road.

Alisa Roth: At Jacks 99 Cent store in Midtown Manhattan, you can find gift wrap. Hair accessories. Foot powder. Canned goods. Party favors. All for less than a dollar.

Anthony Graves is buying frozen pot pies. He says he started coming here about nine months ago to find an alternative to Manhattan’s expensive lunches.

Anthony Graves: I can get a good lunch in here much cheaper than what I can get on the street. And I get a better selection. I can have a meal here for under $3.

Which he points out would be a stretch, even at McDonald’s.

Lunch isn’t the only thing Graves buys here:

Graves: You know, I mean, it’s great, there’s a lot of stuff in here that you can’t get in a supermarket at these prices.

He’s not the only new convert seeking out bargains among the dollar store bins. Jack’s manager guesses his store has about 10 percent more customers than before. And competitor Dollar Tree recently reported it was seeing more and bigger transactions.

But the dollar store model’s not a sure bet when times get tough.

Patrick McKeever is an analyst at MKM Partners:

Patrick McKeever: The problem is that they’re seeing the low end, the lower end of their customer base almost getting pushed out of the store almost entirely by gas at $4 a gallon. So they’re losing some customers.

And prices are going up for vendors, too. In turn, they’re charging dollar stores more.

McKeever says that’s something analysts predicted would happen:

McKeever: That inflation would eventually catch up with them. And right now we’re in a period of pretty significant inflation.

He says there are ways for stores to get around it, like putting fewer items in a package, or finding suppliers in other cheaper countries — say Vietnam instead of China.

Question is how much longer these stores can hold out. Many are already charging more than a dollar for some items. They could just change their names. But then, Jack’s $5 Store doesn’t have quite the same ring to it.

In New York, I’m Alisa Roth for Marketplace.

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