March 25, 2015 3:23 pm
Updated: March 25, 2015 4:09 pm

Dollarama has big expansion plans as Target bolts for exit

A slowing economy as well as high household debt levels are forces working in Dollarama's favour, experts say.

The Canadian Press

Target’s exit is providing some minor, near-term headaches for Dollarama as liquidation sales at the former attract shoppers away from the country’s largest bargain dollar-store retailer.

But Dollarama sees its fortunes continuing to rise following the departure of the U.S. retailer, announcing plans on Wednesday to open more than 400 additional locations in the coming years, riding economic trends that are pushing more Canadians into the discount aisle.

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“During the liquidation period, we’ve been slightly negatively affected because dollars are going that way,” Larry Rossy, Montreal-based Dollarama’s chief executive, said on a conference call.

Dollarama has been steadily rolling out new locations, even while Target undertook its ill-fated expansion into Canada. A total of 81 stores were added to the dollar-store chain in the past year – now at 955 locations. Rossy said there’s room for more than 400 additional openings though, an estimate that doubles the number of new store executives were discussing up to now.

MORE: Dollar stores in expansion mode as more Canadians feel cash pinch

Target, trends

Target’s departure as well as macro economic trends are favourable drivers for Dollarama’s growth, experts say. Target is vacating 133 locations by mid-May with dozens of stores slated to shut down in the coming days and weeks.

“The stores are there to be opened,” Rossy said.

Analysts speculate Walmart Canada will pick up several former Target leases – 50 was a number suggested by one on Wednesday’s conference call. Rossy — who did not comment on Dollarama’s own interest in acquiring Target leases — said any locations taken over by the U.S. retailing giant will actually benefit nearby Dollaramas, which cater to a similar customer but sells things that don’t overlap significantly with Walmart.

“Any locations that Walmart takes are going to drive a lot more traffic,” Rossy said.

MORE: Get ready for more Walmarts, Canada

Dollarama’s seemingly unfettered expansion is also being fueled by an ongoing shift among Canadian consumers, experts say. High debt levels among an increasing number of households are forcing more to downshift spending to lower-cost goods – the kind of inexpensive products Dollarama specializes in that can substitute for comparable goods at more expensive stores, such a dish soap, cleaning supplies and snack foods, experts say.

Waiting in wings

A slowing economy, notably in Alberta and other resource-dependent regions, also represents a favourable development. Asked on the call about whether a downturn would negatively impact the retailer, Rossy said the opposite was true.

The executive said he’s been waiting for a moderation in real estate prices, as well, something that would dissipate some of the so-called wealth effect consumers feel amid record-high home prices, a phenomenon that encourages shoppers to spend more because they feel wealthier.

Home values in many markets are cooling now amid a broader decline in economic conditions. For consumers affected by the current trend lines, “we’re waiting in the wings,” Rossy said.

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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