Dollarama Inc. Is About to Have More Competition

Dollarama Inc. (TSX:DOL) remains a great investment for retail sector investors, but foreign competition is heating up.

| More on:
The Motley Fool

Few critics would argue with the fact that Dollarama Inc. (TSX:DOL) is one of the better investment opportunities in the retail sector at the moment, if not the best.

Dollarama has seen phenomenal growth over the years, and the stock up nearly 40% over the past year and over 86% in the past two years. Impressively, the company has also developed a knack for shattering expectations come results time. Most recently, Dollarama reported double-digit sales growth and diluted earnings-per-share growth.

Part of the reason for that growth can be attributed to the wide variety of products Dollarama sells, which, for a dollar store, are notably a notch or two above the competition.

That competition is set to heat up as two existing foreign-owned dollar store players that already have a small presence in Canada are set to expand in big ways.

Dollar Tree ready to move into Quebec?

Dollar Tree Inc. (NASDAQ:DLTR) is the largest dollar store operator in the U.S. with locations in the 48 contiguous states; it also has locations in five provinces in Canada. In all, Dollar Tree has 226 locations in Canada and over 13,500 in the U.S.

While Dollar Tree’s operations in Canada still pale in comparison to Dollarama’s, the U.S. behemoth is looking at expanding into Quebec, one province the company does not yet operate in and Dollarama’s home province.

Vice President of investor relations Randy Guiler recently commented that the potential for Dollar Tree in Canada could include up to 1,000 locations with both Montreal and Quebec City cited as expansion points.

Expansion into Quebec is the next logical expansion route for Dollar Tree, as the company has locations in British Columbia through Ontario.

Chinese retailer Miniso expanding further into Canadian market

Miniso, a Chinese retailer of value-based goods similar to Dollarama, is another recent entrant to the Canadian market that is looking to expand further into Dollarama’s home turf. It has up to 500 new locations targeted for the Canadian market at a rate of 35-50 over the next year.

Miniso carries predominately cosmetics, stationary, and toys and already has one location open in Vancouver with a several more set to open within the next few months.

What does this mean for Dollarama?

Critics often point to the possibility that the market for dollar stores in Canada is becoming too saturated, too fast. Dollarama has, after all, expanded to nearly 1,100 locations in a fairly short period of time, far surpassing the competition.

The reality, however, is that the market is nowhere near saturation, and could, as per industry experts, handle significantly more stores before reaching anywhere near the saturation that exists in the U.S. market.

Additionally, Dollarama’s unique mix of price ranges allows the company to offer a greater variety of goods over the competition. That price range also allows Dollarama to carry products that typically wouldn’t be found in other dollar stores. Dollar Tree can’t match Dollarama on those price points, particularly the higher-priced items that Dollarama carries.

While Miniso and Dollar Tree could provide limited competition for Dollarama in selective markets, it will be several years before either of these entrants could challenge Dollarama’s current spread across the market, at which point, Dollarama would be significantly larger.

Dollarama remains the dollar store leader in Canada for the foreseeable future.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

More on Investing

GettyImages-1352607170 (1)
Tech Stocks

Why Shopify Stock Is Skyrocketing Today

Shopify published its Q3 report this morning, and it gave investors plenty to be excited about.

Read more »

Hand Protecting Senior Couple
Dividend Stocks

3 Blue-Chip Stocks So Safe Canadians Can Hold Them Until They Die

Canadian National Railway (TSX:CNR) is a stock worth owning for life.

Read more »

stock research, analyze data
Dividend Stocks

14.7% Dividend Yield? Buy Up This Passive-Income Stock in Bulk!

That dividend yield is high, but it still comes with some strong reasons to consider the stock outside of a…

Read more »

calculate and analyze stock
Stock Market

Chewy vs. Pet Valu: Which Growth Stock Is a Better Buy?

Chewy and Pet Valu are two beaten-down pet stocks that trade at a reasonable valuation in November 2024.

Read more »

Forklift in a warehouse
Investing

Canadian Industrial Stocks to Buy Now

Canadian industrial stocks offer a comprehensive variety of safety, dividend, and growth combinations. This ensures that all kinds of investors…

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, November 12

Sliding metals prices amid a strengthening U.S. dollar could continue to weigh on TSX mining stocks today.

Read more »

rising arrow with flames
Investing

2 TSX Stocks With Market-Beating Potential

Fairfax Financial Holdings (TSX:FFH) stock has been soaring of late but remains cheap from a valuation perspective.

Read more »

Canadian Dollars bills
Dividend Stocks

1 Dividend Stock That Could Create $5,000 in Tax-Free Passive Income in 10 Years

Here's why Fortis (TSX:FTS) certainly looks like a top dividend stock with outsized total return upside worth buying right now.

Read more »