LOS ANGELES — After four years without a job and two years living in a Motel 6 in Inglewood, Calif., Jay Payne is Christmas shopping for the first time in a long while.
His three children, ages 7, 13 and 15, have asked him for a Nintendo 3DS gaming console and a PlayStation system, gadgets the 37-year-old single father has frantically tried — and failed — to budget for. Payne, who landed a parking lot security job this month, is hunting for gifts in the few places he can afford: dollar stores.
"I can drop four quarters and buy my kids a toy here, and they'll love it," said Payne, browsing at a 99 Cents Only store in Los Angeles one recent night. "It's a blessing for the holidays."
Dollar stores have evolved into a go-to spot for holiday shoppers on a tight budget or trying to get more value for their money. In contrast with the often-dingy spaces they once occupied, many have undergone renovations and are stocked with a bounty of Christmas trees, wrapping paper, toys and inexpensive electronics for the holiday season. Some even carry steaks.
With the job market and economy still unsettled, dollar stores are predicted to perform robustly as shoppers of all incomes flock there to pick up cheap decor and presents.
For the fourth quarter, the category is expected to post a sales increase of 4.2 percent or higher at stores open at least a year, according to business data firm Thomson Reuters.
Although dollar stores have attracted higher-income customers in recent years, the fallout of the nation's economic downturn is still especially evident in the aisles of these low-cost stores during the holidays.
Dollar stores — which typically offer most items for $1 or less, and sometimes goods from $5 to $10 or higher — have expanded rapidly in recent years.
Several chains, including Dollar General Corp., based in Tennessee, and Family Dollar Stores Inc. of North Carolina operate thousands of stores and plan to expand in the West, the home turf of 99 Cents Only Stores Inc. The City of Commerce, Calif., company has nearly 300 stores, mostly in California.
Other retailers say dollar stores don't necessarily equate to the best value for holiday gifts.
Brian Hanover, a spokesman at Sears Holding Corp., which owns the Sears and Kmart chains, said shoppers may go to dollar stores for the "perceived cost" and convenience. But great bargains on sturdier and better-quality gifts can be found elsewhere, he said.
"Whether a gift is a stocking stuffer or not, even if it's something small, it's nice if it's something of quality," Hanover said.
The dollar chains are bolstered by the financial anxiety of their core customers — people such as Cindy Cordon, who holds a part-time retail job and cares for her 4-year-old son alone.
The Los Angeles resident used to shop at discounters such as Wal-Mart and Target, but traded down after getting her work hours slashed after the recession. On a recent weekend night, Cordon, 20, walked the aisles of a Dollar Tree store in Los Angeles, carefully inspecting a plastic dump truck and a plush bear, both for $1, before putting them back on the shelf.
"I think, if I plan carefully, I can get my son a few things from here for Christmas," Cordon said, holding an empty shopping basket. "But maybe I won't be able to do even that.
"Lucky he's only 4 years old right now," she said. "He won't know the difference until he gets older."
Catering to customers like Cordon, Family Dollar this year upped its assortment of toys by 10 percent over 2010, and focused on growing its $5 and $10 selections. Its stores also carry more expensive electronics such as a $25 MP3 player and a $30 digital flip camera.
"Value is especially important this time of the year," company spokesman Josh Braverman said. "Some of our customers are single moms, and everyone has a story to tell. If they have four quarters they can come and buy something for their kid."
Other chains such as 99 Cents Only are also focused on spicing up their holiday mix.
"The season was focused on bringing in a lot of home decor, Christmas lights, scenic backgrounds," said Vivian Son, a senior buyer at 99 Cents Only. "We're also expanding our cold-weather wear — hats and scarves and those types of things — and improving the quality."
Consumers ranked dollar stores second, after online retailers, as the top places they plan to shop for the holiday season, according to a recent Nielsen national survey.
The biggest growth driver for dollar stores are shoppers earning more than $100,000, who have increasingly turned to the stores for household necessities, said James Russo, Nielsen's vice president of global consumer insights. Since 2008, such shoppers have increased their trips to dollar stores by 11 percent and the average size of each purchase by 23 percent.
That has prompted stores to spruce up their holiday offerings of festive decor, and even pricier gift items.
"The initial reaction is surprise, because the connotation that dollar stores still has is 'these items are all under a dollar,' " Russo said. "But they are offering bigger-ticket items, and people are buying more."
Dollar stores are also helping fuel another holiday trend — handmade holiday gifts.
Cypress Newton had all but given up on Christmas for her two children, Octavian, 9, and Wrenye, 16, before deciding to fill up baskets loaded with trinkets culled from 99 Cents Only.
"I basically decided not to make it a big deal this year, without killing the spirit and joy of Christmas," said the Inglewood resident, who blamed "the recession and bills" for cutting back her holiday budget to almost zero this year. "If you can make something, you still show the love and it doesn't have to cost a lot."
Russo said dollar stores are working hard to offer products and services that attract shoppers during the holiday season and beyond.