Dollar stores have become an unlikely destination for holiday shoppers of all income levels as the recession squeezes budgets.

BERKELEY, Calif. — Dollar stores have become an unlikely destination for holiday shoppers of all income levels as the recession squeezes budgets.

Shoppers like Rebecca McGee, who was browsing the 99 Cents Only store in Berkeley looking for holiday decorations and gift wrapping supplies. McGee, 25, figures if she bought the same pack of gift tags at a Hallmark store, she would have paid $5.

She started shopping at dollar stores a couple years ago after a stint of unemployment made her more aware of her finances. "Now, I'm just budgeting myself a whole lot more," said the educator and Berkeley resident.

Dollar stores are expected to be among the star retail performers this holiday season, according to a Nielsen survey.

"There is no stigma from going to a dollar store," said James Russo, Nielsen's vice president for global consumer insights. "It's frugality. It's practicality. It's convenience."

Dollar stores "have been doing better during the last three years and continue to do better throughout the year and during the holidays," said Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consultant. "These places are eating Wal-Mart's lunch. "… It's one of the fastest-growing sectors of retail."

Not surprisingly, price is a big reason for that. "I don't have the finances to shop at my favorite Target and Walmart stores," McGee said. "It's a whole lot cheaper."

Marciano Martinez walked into the Berkeley store with a mission to find a holiday decoration to hang on the door of the Berkeley apartment he moved into a few weeks ago. "I'm looking for a big, cheesy red faux bow to go on the door," said Martinez, a 42-year-old weight-loss consultant who moved from Los Angeles. He chuckled when describing his quest but went on to say that he had previously shopped at the store to buy things for his apartment.

"You walk in here and you never know exactly what you're going to walk out with," he said. "I worked in retail for many years and refuse to pay full price for anything."

Yvonne Lofton filled her shopping cart with holiday decorations for a workplace event. "I'm on a $20 limit," said the 50-year-old supermarket clerk who lives in Berkeley. "It's a good place to find Christmas decorations."

Dollar stores typically carry a wide variety of merchandise, most of which is priced at, well, a dollar. There are household cleaning supplies, kitchen supplies, beauty products, pet supplies, seasonal merchandise, groceries and frozen foods. Many also carry fresh produce.

The 99 Cents Only chain, along with Dollar Tree, Dollar General, and Family Dollar, are publicly traded companies. There are also independent dollars stores.

Even before this holiday season, dollar stores have been doing quite well. For the third quarter, Dollar Tree's same-store sales were up 4.8 percent compared with a year ago, while Wal-Mart's same-store third-quarter sales rose 1.3 percent and Target's third-quarter same-store sales were up 4.3 percent. Third-quarter figures have not yet been released for 99 Cents Only Stores, but for the second quarter, same-store sales were up 6.7 percent from a year ago.

Affluent households — those with yearly households income of more than $100,000 — are helping to drive sales growth. "They are getting the highest increases in shopping trips, as well as the transactions," Russo said.

Still, the largest share of money spent at dollar stores comes from people with household incomes of $50,000 or below.

Indeed, hard financial times do bring customers into dollar stores, according to Barbara Kahn, marketing professor at the Wharton School of the University of Pennsylvania and director of the Jay H. Baker Retailing Center.

"It's still tough going, and it's going to be tough until we see unemployment go down," she said.