Welcome to 2015, a time when a dollar store exists in name only. Okay, that’s not exactly true—but almost. And be warned, by next year the chilling notion may be reality.
As it stands, Dollarama, by far the country’s biggest bargain store chain, says more than three quarters of the items it sells (76.5 per cent, in fact) are now at a price point north of $1. And the percentage is rising fast.
“That number is going to climb quickly because the great $1 item is disappearing,” retail stock experts at CIBC World Markets said in a research note on Friday.
That great score for a buck is actually rising in price now, thanks to a variety of factors, and the leftover $1 items are increasingly shoddy, the CIBC analysts suggested.
“A combination of currency and changing dynamics in Asia renders those products almost worthless from a quality standpoint,” the analysts said.
From $3 to $4
Dollarama said this week the weaker Canadian dollar is forcing it to raise prices and could lead the discount retailer to increase its current price threshold from $3 to as much as $4 by late next year.
“The probability is in the third and fourth quarter of next year, we’ll have to move our price points up,” CEO Larry Rossy said on a conference call.
While some dollar-related inflation has worked its way into prices at the bargain store, they haven’t seen a step-change up just yet, experts say. But Dollarama – just like other Canadian retailers — will soon feel mounting pressure to roll out new price tags.
MORE: 5 things you should load up on at the dollar store
Hedges help
The pressure will really be felt once hedging contracts Dollarama has taken, which lock in its purchase orders at a set dollar value, start to expire. Its current hedging contracts give it access to U.S. dollars for a lot less than what Dollarama would pay now (the loonie is trading at around 75.5 cents US Friday, or a full 10 cents lower than where it was at the start of the year).
‘The great $1 item is disappearing’
Once its current contracts expire – in about six months, the retailer says – it will have to pay more for the array of goods it imports from overseas. And that means customers will pay more.
“As the hedges roll over, the impact of the lower Canadian dollar will be felt,” Keith Howlett, analyst at financial services firm Desjardins Securities, said.
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’Not pleasant’
Still, the basic “value proposition” that Dollarama offers – cheaper versions of products found elsewhere, like household cleaners, kitchen ware, seasonal items etc. – isn’t going to diminish with the price hikes, CIBC analysts said.
With all retailers likely to nudge prices higher, Dollarama’s shelves will still carry products that are between 40 to 70 per cent cheaper than comparable items at other retailers, the analysts predict. That’s because the loonie’s downdraft is universal, affecting all major retailers.
“In general, we like to maintain our prices as long as we can, but this is really an exceptional time where the Canadian dollar has gone so poorly against the U.S. dollar and everything is bought in U.S. dollars,” Rossy said.
“So as a consumer, I guess next year will not be a pleasant year from a purchasing point of view.”
WATCH: Just like how buying certain items in bulk can save you money, buying specific items at your local dollar store can amount to big savings as well. Brian McKechnie reports.
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