PRICE CHECK
Dollarama admits that most items in its stores cost at least $1.25, says it will use that figure as its new reference point,
Dollar-and a quarter-ama?
The discount retailer confirmed Wednesday what a lot of its customers already know: The majority of items in the stores are priced above $1.25.
So the Montreal-based chain — where everything originally sold for a loonie or even less when it was founded more than 20 years ago — said it will start to use $1.25 rather than a dollar as its new reference point when reporting sales and financial results.
And while its current maximum price point is $3, Dollarama will also introduce even higher-priced items of $3.50 and $4 starting in the second half of next year, chief executive Larry Rossy told analysts on a conference call.
He said many products at its 1,005 stores across Canada are still priced at a dollar, but the $1.25 metric is “a better representation of our price-point range.”
The company said the higher-priced items are intended to help it adjust to the impact of the weakening Canadian dollar.
Dollarama started increasing its prices beyond $1 about six years ago, and then introduced the $2.50 and $3 items in 2012.
A spokesperson said the new $1.25 base price point is “totally unconnected to anything happening in stores,” and that items without price stickers will remain one dollar, as usual.
“It’s a very interesting situation for them,” said Ken Wong, a marketing professor at the Smith School of Business at Queen’s University.
He said it reminds him of how the fiveand-dime stores in the 1950s eventually had to drop that moniker as costs crept up, and then were eventually swallowed up by Kresge’s and Woolco, then K-Mart and Walmart.
“History has a funny way of repeating itself. No matter what business you’re in, your prices can only be as low as your costs,” Wong said. Meanwhile, the company — whose green-and-yellow signage already contains the word “plus” beside the $1logo to reflect higher prices — will try to stick to its cap on grocery items of $2, Rossy said.
Wong said he doesn’t think consumers will have a big problem with increased prices because Dollarama shoppers have come to expect “a reasonable product at a reasonable price.”
“But crappy quality isn’t a bargain at any price,” he added.
For many years, the stores only took cash as payment, but now that nearly half its transactions are done by debit since the company started taking those cards in 2008, Dollarama will soon start accepting credit cards in a test market in B.C., the company said.
Dollarama said it has been able to man- age the effect of Canada’s weaker dollar, contributing to substantial growth in sales and profit during the discount retailer’s third quarter.
For the three months ending Nov. 1, 59.7 per cent of its sales came from prices above $1.25, compared with 54.1 per cent during the comparable period a year ago.
Sales were up13 per cent from the corresponding time in 2014, in part because of sales growth at established locations plus the addition of 77 stores, including 16 in the third quarter.
Net income rose to $100.1 million, or 78 cents per share, with $664.5 million in sales. Year-earlier net income was $73 million, or 55 cents per share, and sales totalled $588 million.
Comparable-store sales for the quarter ended Nov. 1 grew by 6.4 per cent, which was partly a result of a bigger average transaction as well as a higher volume of transactions.