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The death of the $1 bargain

Andrew Seale
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Dollarama might need to fork out a few extra dollars on a new sign.

The Montreal-based discount retailer will be raising prices to the $3.50 and $4 range and expanding their offering to better quality products, said CEO Larry Rossy during a conference call about the company’s fourth-quarter and fiscal 2016 results.

“You can only do so much at $1 when it comes to a vase,” he said. “You can do a lot more at $2 or $3.”

The comments surrounded news that Dollarama’s average transaction size grew 3.5 per cent and traffic grew 4.2 per cent in the final quarter of last year.

The company has been slowly raising prices over the past six years.

“There kind of in a spot here where they got limited in some ways with the dollar store concept,” says Ed Strapagiel, a Toronto-based retail analyst and consultant. “If you really look at it strictly and say everything has to be a dollar, well, sooner or later you run out of decent products to sell at that price point.”

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According to Dollarama, 76.5 per cent of its products cost more than a dollar. But it doesn’t seem to deter consumers.

“These days the term dollar store no longer literally means a dollar – we’ve moved on from that and everybody is okay with it,” he says. “As long as they are the lowest price point for the various lines of product they’re known for.”

Dollarama’s profits increased to $385.1 million for fiscal 2016 from $295.4 million in 2015. Annual same-store-sales growth was 7.3 per cent and the company has opened 75 net new stores in the past 12 months, bringing the total number of stores in Canada to 1,030 with plans to add 70 more this year.

“There is a good market for really low price points and a number of other retailers, like Walmart for example at one time or another, tried to have a dollar section compete because they were feeling the heat,” says Strapagiel. “The dollar stores aren’t just popular amoung low income people but they’re a pretty good place to go get certain things like party supplies or school supplies – they have a viable place in the market.”

But they still need to evolve with changing consumer trends.

Despite its roots as a cash and coins business, Dollarama has added debit over the past few years, which now accounts for 49.2 per cent of sales. The company plans to add mobile scanning technology, Wi-Fi and equip staff with point-of-sale devices letting them process sales anywhere in the store over the next couple years.

“I think it will remain robust for people who are looking for odds and sods, things like kitchen items, cheap crockery… it’s a highly impulse-driven store, I don’t think people see it as a destination,” says Ken Hardy, professor emeritus of marketing at Western University’s Ivey Business School. “If they moved out and encroached on a Walmart or some other serious discounter I think they would be in trouble but I think they’re in a pretty safe space.”

Strapagiel agrees pointing out that although U.S.-based discount chain Dollar Tree pushed into the market in 2010 with its acquisition of B.C.-based Dollar Giant, the industry is much more consolidated than it was a couple decades ago.

“What we have now is a much more mature industry with Dollarama being the biggest one in this country,” says Strapagiel.