The retail industry is facing a cold winter, but Dollarama, a one yuan store, is thriving in business
While most retailers are struggling with sales due to the cost of living crisis, the business of chain retailer Dollarama is thriving.
In fact, Dollarama has become a darling of the stock market, with its stock price rising by 47% in 2024 and currently trading at 139 yuan.
Dollarama, headquartered in Montreal, plans to continue expanding its business in Canada and recently announced that it will increase the number of Canadian stores by nearly 40% to 2200 by 2034.
Dollarama has no interest in entering the saturated US discount store market, but instead holds 60.1% of the shares of Latin American discount store operator Dollacity, which operates based on Dollarama.
Dollarcity plans to double its store count to approximately 1050 by 2030, currently operating in Colombia, Peru, El Salvador, and Guatemala, and plans to open its first stores in Mexico in 2026.
Dollarama's annual revenue for the 2024 fiscal year has reached 5.8 billion yuan, but it has remained low-key.
Image source: business insider
When competing with global retail giants including Walmart, Amazon, and Costco, Dollarama's strategy is not as public as Canadian Tire's. It also faces competition from the US discount store Dollar Tree, which is headquartered in Virginia and operates over 220 stores in Canada.
Faced with strong competitors, Dollarama has become the most valuable discount store chain enterprise in North America with a market value of nearly 40 billion yuan.
By comparison, the two major chain companies in the United States, Dollar General and Dollar Tree, have market values of 24 billion yuan and 22 billion yuan, respectively.
The performance of Dollar in the stock market is in stark contrast to these two American companies: in 2024, Dollar General's stock price fell by 45%, and Dollar Tree's stock price fell by more than 50%.
The secret to success
Widely distributed stores: For example, in Toronto's West End, there are three Dollarama stores within a 15 minute walk.
Raising the price ceiling: In 2022, Dollarama will increase the price ceiling from 1 yuan to 5 yuan, which expands product selection, attracts middle-income consumers, and does not alienate loyal customers.
Brand products: Due to its scale advantage, Dollarama has reached favorable agreements with brands such as Nestl é, PepsiCo, and Kraft Heinz.
Dollarama still sells daily necessities such as buttons, stationery, gift packaging and party supplies. The price of these products is so low that competitors are unwilling to enter or difficult to find in Wal Mart's supermarkets.
Between 2021 and 2023, Dollarama was involved in a class action lawsuit alleging that it did not include "environmental fees" in the pricing of electronic products, which need to be paid at checkout. Dollarama denies any wrongdoing, but agrees to pay 2.5 million yuan and provide compensation of 3 to 10 yuan to eligible claimants according to the settlement agreement.
Dollarama originated from the Rossy family in Montreal, and its history can be traced back to a grocery store chain in 1910, which adopted a discount store model in 1992. By the 2010s, independent family owned hardware and grocery stores had almost disappeared, replaced by Dollarama's bright green and yellow logos, whose purchasing power far surpassed that of small independent businesses.
The total revenue of Dollar General and Dollar Tree in the United States is as high as 94.5 billion yuan, with a total of over 36000 stores, but their profitability is not as good as Dollar ama.
Dollarama's gross profit margin is close to 40%, while American chain companies only have around 30%. American chain stores are excessively expanding, and many stores are located in high crime areas. In addition, these stores sell perishable foods with lower profit margins, while Dollarama completely avoids refrigerated foods.
Neil Rossy, the current CEO of Dollarama, is the fourth generation descendant of the Rossy family's retail business and has served as CEO since 2016. His enthusiasm for new products has led to innovation in the company.
At Dollarama's Montreal headquarters, Rossy's office and underground testing stores are filled with new products. His office also has a "Wall of Shame" displaying unselected products and poorly performing items in store to warn procurement personnel to carefully evaluate customer needs.
54 year old Rossy is considering future expansion, including entering Europe and the Asia Pacific region, but currently his focus is on ensuring that no products in the store will be labeled as "shameful".
Source link:
https://www.thestar.com/business/opinion/why-canadian-discount-darling-dollarama-is-thriving-while-others-slump-just-look-to-its-wall/article_d128e130-b9a8-11ef-977f-d723cab484f3.html