Canada ripe for an invasion of U.S. dollar stores, experts say
A slowing economy and stretched shopper are setting the stage for a spell of softer sales at malls, plazas and big-box stores across the country, a pair of new reports predicted this week.
But there are clear winners from the trend lines, among them dollar stores who are set to thrive, experts say.
Dollarama, the country’s biggest dollar chain, continues to fan out across Canada, while U.S. bargain retailers are now sizing up a bigger push across the border.
On Thursday, the head of one of the biggest dollar chains in the United States, Family Dollar, said he liked what he sees in Canada, strongly suggesting more stores could open here.
“I think Family Dollar would be terrific in Canada,” said Bob Sasser, head of Family Dollar as well as Dollar Tree, another discount retailer in the U.S.
Dollar Tree operates about 220 Canadian locations already, compared with Dollarama’s 955 stores. Both have ambitions of opening hundreds of additional locations in the coming years. Sasser said the Family Dollar banner might expand north, as well.
“We have significant growth potential in Canada,” the exec said on a conference call. “I think the Canadian market would respond very well to another multi-price point value retailer like Family Dollar.”
Experts suggest high debt loads and an economic slowdown that’s already begun to pressure jobs and wages will send more shoppers into bargain-hunting mode, and in search of the kind of inexpensive household items Dollarama offers, like dish soap or even some food items.
“The company’s lower price point will continue to resonate with budget-conscious consumers especially as economic conditions are expected to remain soft throughout 2015,” analysts at Moody’s said in a report this week.
Retail sales continue to hum, but Moody’s expects that to change with growth slowing compared to previous years. “The decrease reflects the impact of high household debt levels, slowing wage growth [and] layoffs.”
Consumers are getting a slight lift in their wallet from lower gas prices, but TD Economics said in a separate report on Thursday the boost in discretionary income is being completely wiped out by the decline in the loonie. The lower dollar is inflating retail prices for merchandise being imported into the country, the report said.
With their rock-bottom prices, dollar stores could be most impacted by a lower loonie, something Dollarama recently said could prompt it to nudge prices higher this year if its costs rise too high.
Stores and chains may resist passing higher costs into their prices, especially as consumers grow more thrifty. But even if prices go untouched, shoppers who’ve run up cards and are growing cautious about the economy will be less inclined to spend.
“Households will direct most of their fuel gains to debt repayment and savings rather than retail spending,” the Moody’s report predicted.
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