Dollar General makes strong debut after IPO

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Shares in Dollar General rose 8.2 per cent on Friday in the first day of trading after the discount chain raised $716m in the largest US retail initial public offering in more than 12 years.

Shares in the company, which was bought by the private equity firm Kohlberg Kravis Roberts in 2007 and sells everything from diapers to chocolate bars at heavily discounted prices, closed at $22.73. The shares were priced at $21, which was at the lower end of estimates.

The offering came the same day as an IPO from Rue21, the low-price clothing chain. While Rue21's debut was worth only $129m, the shares proved to be even more popular, soaring over 30 per cent during trading.

Budget retailers operating at the very bottom of the market such as Dollar General, which sells a quarter of its stock for less than $1, have thrived in the recession.

Similar chains in the UK, such as Poundland and the 99p Store (5711.KL - news) , have also widened their customer base as more middle-class shoppers cast aside their prejudices and rummage for bargains.

However, Scott Krugman of the National Retail Federation said the offerings on Friday also highlighted the sector's long-term growth prospects.

"Right now, discount retailers are strong because people are depending on them for necessity items such as grocery and certain types of apparel," he said. "But a lot of these discounters are also selling electronics and a variety of other items that would be considered discretionary and those are the items that they'll start selling more of when the economy improves."

Howard Davidowitz, chairman of Davidowitz & Associates Inc, a national retail consulting firm, said he viewed the offerings as evidence of a permanent shift away from grocery stores.

"Traditional supermarkets have already gone bankrupt this year and the discount sector will continue to grab a bigger share," he said.

For decades since its conception in 1939, Dollar General focused on private label brands but the lure of the low-cost market has persuaded leading names such as Procter & Gamble to produce customised versions of their brands for the chain.

Last year, Dollar General brought in $10.5bn in sales, dwarfing the 2008 revenues of Family Dollar Stores (NYSE: FDO - news) , its publicly listed US rival, by more than $3bn.

Dollar General, which has 8,700 stores across 35 states, went private in 2007, when KKR bought the Tennessee-based chain for $7.3bn.

According to Thomson Reuters (TRI.TO - news) , the offering by Dollar General was the sector's third-largest after the IPO in 1995 by Intimate Brands, the lingerie group, and by American Stores, the food and drug retailer, in 1997.

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