Dollar stores in expansion mode as more Canadians feel cash pinch

A slowing economy as well as high household debt levels are forces working in Dollarama's favour, experts say.
Dollarama is on a tear, adding dozens of stores in the past year with plans to add dozens more in the next. The Canadian Press

A pair of polls this week underscored how increasingly cash-strapped Canadian families appear to be.

BMO’s yearly “rainy day” survey, as well as the Canadian Payroll Association’s annual pulse-taking of the financial affairs of households, revealed many have seen their personal finance situations deteriorate in the last year, as the job market has struggled to reward workers with more pay or stable employment.

MORE: More Canadians have less in “rainy day” savings, BMO says

Perhaps it’s not surprising than that Dollarama, the ultra-low cost bazaar of household goods, personal care products and thousands of other inexpensive day-to-day items, is on a tear.

The Montreal-based retailer said Thursday sales are up by double digits and it continues with sweeping expansion plans to fan more Dollarama locations out across Canada.

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On a conference call, Larry Rossy, the head of the chain, said Dollarama’s momentum this year has been “defined by continued organic growth through the opening of new stores across Canada,” while customers are buying more “higher priced” items at its dollar stores (in the $2.50-$3 range).

There were 89 new stores opened in the last 12 months, roughly the same number opened in the previous year, and in line with the 70 or 80 planned for next year.

Dollarama’s total store count stands at 917 at the moment, but the goal is to top 1,200 within a few years.

Western spread

Having spread more quickly throughout provinces east of Ontario in recent years – where employment and economic conditions have lagged – Dollarama’s attention is now aimed west.

Most new stores will be located in Ontario and in Western Canada, “which are locations that continue to be underpenetrated with dollar stores,” Rossy said.

MORE: Prepare for a dollar store invasion, Canada

Economic backdrop

The expansion of the ultra low-cost retailer is happening as the job market is struggling to generate higher paying jobs, with part-time work accounting for much of the still-weak job growth this year.

Unemployment has hovered around 7.0 per cent for more than a year, a level RBC chief economist Craig Wright doesn’t see improving much until the tail end of 2015.

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“Like everyone we’ve been disappointed with the recent employment numbers,” Wright said.

MORE: August’s disappointing jobs report show 11,000 positions shed

The knock-on effect is that wage gains will likely remain muted.

“Wage gains have been pretty modest, which is not surprising.When you look at the environment that we’re currently in, workers tend to look for job security not wage gains,” Wright said.

As a result, experts suggest Dollarama, as well as larger-format discount chains like Target, could see more momentum in sales in the coming year as shoppers hunt out cheaper deals.

Dollar Tree grows

And Dollarama isn’t the only ultra-low cost retailer in expansion mode. Dollar Tree has opened about a dozen additional locations in Canada in recent months, bringing the U.S. chain’s total number of Canadian stores to more than 200.

It has plans to reach 1,000. Referring to his company’s own plans, Rossy said, “We’ve mapped out the whole country.”