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Are Dollar Stores the Future of Retail?

The success of Dollarama comes at a time of the downfall of mid-priced retailers and the success of fast-retailers like Amazon and Forever 21. It seems traditional retail is riskier than ever.

By Erin Davis

By Erin DavisView Author PostsOct 23rd 2017

I remember feeling slightly disappointed when I heard that a Dollarama – complete with its impossible-to-ignore green and yellow signage – would take over a large, prime piece of commercial real estate on Bayview Avenue in Leaside when I lived there about five years ago.

How junky, I remember thinking (and yeah, that sounds a tad snotty), envisioning how it would stick out next to the upscale strip’s quaint cafes, clothing stores, restaurants and gelato spots.

But when I think about it, Dollarama has saved me more than a few times in recent years, whether for a last-minute Halloween costume, or to satisfy my guilty pleasure for candy and grapefruit-flavoured San Pellegrino. It’s been a godsend for last-minute materials when planning events for work and birthday barbecues. From clothing to food items, the dollar store has increased its offerings as of late. They can offer similar products as the big box suburban staples like Walmart and Canadian Tire, but at more affordable prices – and, like their counterpart Dollar Tree in the U.S., they’re popping up everywhere.

Don’t expect Dollarama to disappear any time soon: The company posted earnings that topped analysts’ estimates last quarter. In a recent earnings report, Dollarama Inc. announced it would open as many as 70 different stores across Canada this year. On Monday (October 16), shares of Dollarama Inc. (TSE: DOL) hit a new 52-week high, trading as high $141.82 CAD.

Dollarama has also started to accept credit cards in recent years, catering to a new type of customer. The typical dollar store shopper is changing, after all. South of the border, it’s the more affluent customers – those who earn $70K a year or higher – who are making the largest impact in the dollar store sector, according to The New York Times. This demographic comprises over 22 per cent of the customer base. In today’s world, there is no shame in being strategic on dollars you spend (and save). After all, with things like the out-of-control real estate markets in Toronto and Vancouver, cash is tight for many. Saving money is in style like never before in a society that’s no longer impressed by logos.

The success of Dollarama comes at a time of the downfall of mid-priced retailers (think BCBG, American Apparel and Express) and the success of fast-retailers like Amazon and Forever 21. It seems traditional retail is riskier than ever. While Dollarama continues to increase its physical stores, online merchants that lack bricks and mortar stores continue to alter traditional spending habits as online shopping grows in popularity.

But the dollar store appears untouched by the shift to shopping via a screen and subsequent liquidation of bricks and mortar stores.

The thing is, it’s important to keep in mind that the success of the dollar store is also based in the experience and the convenience factors; they offer a sense of discovery and a cheap thrill when you leave armed with way more than you intended to buy. They also seem to cater to last-minute purchases – something that the online retail world doesn’t help as much with. When there’s a Dollarama in every neighbourhood, it’s a no-brainer. In fact, it’s often easier to find a Dollarama than it is a Shoppers Drug Mart.

Can Dollarama continue to grow? Their increased growth and offerings now puts dollar stores in direct competition with grocery stores. In order to compete, this means they will likely have to increase their overhead and expand to accommodate things like more varied food offering with the addition of things like pricey freezers. Canada’s minimum wage hikes could also increase overhead for the dollar store. Commercial real estate isn’t getting any more affordable either. Nonetheless, in a time of savvy shoppers, it looks like the Dollarama will remain staples in most Toronto neighbourhoods for the foreseeable future.

While they continue to thrive, the big question that remains is how much longer you’ll actually be able to buy anything for $1.