Dollar General and other dollar stores are thriving while department stores like Macy's and Sears close hundreds of locations.

Dollar stores' sales grow as more Americans struggle economically, with retailers betting on a "permanent underclass in America."

Dollar General's CEO said the American economy "is continuing to create more of our core customer" — households making less than $40,000 a year.

Dollar General and other dollar stores are thriving while department stores struggle to survive — and their success is built on the death of the American middle class.

The Wall Street Journal reported that Dollar General has become one of the most profitable retailers in the US by opening more locations in places across the country that have continued to struggle economically.

Dollar General cuts costs by avoiding spending money on stores' aesthetics and design. Business Insider/Hayley Peterson

"The economy is continuing to create more of our core customer," Dollar General CEO Todd Vasos told the WSJ.

The company's target shopper comes from a household making $40,000 or less a year.

"We are putting stores today [in areas] that perhaps five years ago were just on the cusp of probably not being our demographic, and it has now turned to being our demographic," Vasos said.

As department stores like Sears and Macy's have struggled to grow sales, dollar stores and other super-budget retailers are dominating.

From 2010 to 2015, dollar store sales grew from $30.4 billion to $45.3 billion in the US. While retailers close thousands of stores across the US, the WSJ reports Dollar General is planning to build "thousands more stores, mostly in small communities that have otherwise shown few signs of the U.S. economic recovery."

Dollar stores' success is based on their ability to provide what lower-income households need when they have no other options. Instead of selling items in bulk that allow for long-term savings, dollar stores sell small quantities of items that customers can afford — even if they end up paying more on a per-ounce or per-item basis in the long run.

"Essentially what the dollar stores are betting on in a large way is that we are going to have a permanent underclass in America," Garrick Brown, director for retail research at the commercial real estate company Cushman & Wakefield, told Bloomberg.

Brown continued: "It's based on the concept that the jobs went away, and the jobs are never coming back, and that things aren't going to get better in any of these places."

Pew Research Center defines "middle class" in America as households with two-thirds to double the national median income. While that still includes roughly half of American households, it's a shrinking group — from 2000 to 2014, middle-class populations decreased in 203 of the 229 metropolitan areas reviewed in a Pew study.

While the average household income for the wealthiest 20% of Americans grew by about 60% from 1980 to 2015, the rest of America has lagged significantly behind. The mean income of the lowest-earning 20% grew by just 10% in the same time period.