Is a "dollar" store no longer a dollar store when its price point goes over one dollar? Not according to Dollarama Inc., Canada's premier haven for frugal shoppers looking for the best deals at low prices. In the spring of 2012, Dollarama added merchandise at $1.25, $1.50 and $ 2.00 and later added stock at $2.50 and $3.00. Today, the company reports that 2/3 of its sales are generated by products priced over $1.00. Chief financial officer Michael Ross admitted that the company was nervous about the strategic switch in its business model, but over time Dollarama concluded that consumers were just looking for the best deal. Ross said: "I think we're a low-entry price-point value store. As long as whatever we sell we sell it at a better value than anyone else, the business case holds".
Not everone agrees with Mr. Ross. Keith Howlett, an analyst with Desjardins Securities in Toronto, claims Dollarama may destroy the sheer psychological pleasure a consumer gets at a true dollar store. "As prices go up, now you go in and you might only get 4 items for $10. Does the enthusiasm pale? My own view is it probably does because there seems to be something intrinsic about buying a lot for a little. There's some kick out of it."
Yesterday, Dollarama's chief executive Larry Rossy announced a 25% increase in net earnings last quarter. His conclusion - "We'll stay with that mix of prices as long as we can".
So far, the future for Dollarama looks bright. Currently, it operates 917 stores in Canada and is working towards a target of 1200 outlets. Will their strategy hold? Why not. After all, a dollar ain't what it used to be.
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