The Primacy of the Dollar Store

The “dollar store” has become ubiquitous in the urban sphere, Dollarama has spread like Creeping Charlie.  But before the flood of Dollaramas the dollar store itself has been around for awhile, made possible by revolutions of global trade and products made in countries with bottom of the barrel labour standards. The rise of the dollar store, the primacy of the dollar store and the negatives of the dollar store are all explored in this article.

Chrystia Freeland wrote in her book Plutocrats: The Rise of the New Global Super Rich and the Fall of Everyone Else, discussed an interesting theory: the consumer hourglass theory. The consumer hourglass theory was devised by Citigroup, this theory illustrates which companies are smart to invest in.  The smart investments would be in deep discounters such as dollar stores and luxury companies because those two ends of the spectrum are growing, while services and retailers servicing the middle class are being eviscerated, the end result looks like an hourglass.  This is what growing income inequality looks like, luxury companies which cater to the high-end are growing and the plunging legions of middle class folk into the lower echelons of society are going to be feeding out of the lower level of businesses, the dollar stores and cheap discounters.  This theory is the representation of what is happening to the economy and shows the rise of the dollar store.

It is with this point that we come to the dollar store, a winner of the changing tides of the economy.  This is true with Canada’s most visible dollar store: Dollarama (TSX:DOL), which has had impressive growth over the years under Lawrence Rossy. Dollarama heritage goes back as a family business which successfully navigated the pitfalls of the economy and ended up getting purchased by Bain Capital. Those of you who remember back to the 2012 Presidential Election Mitt Romney was given the moniker “Mitt the Ripper”(by Stephen Colbert) due to his affiliation of Bain Capital and Bain Capital`s tendency to practice “cut throat capitalism”. But Dollarama grew under the direction of Bain Capital without suffering severe interventions. In 2009 Dollarama had an IPO and is now publicly traded.

Since Dollarama went public in 2009 it’s value has risen 600% and in the first quarter 2015 sales were up 22% from last year at the same time – contrast with retailers such as Zellars or Target Canada which are no more. Dollarama was making waves and in 2012 The Financial Post noted that Dollarama was beating Wal-Mart and Target vis-a-vis share performance.  This performance was not short lived either, even today they are beating expectations for quarterly profits.

The future is looking good for Dollarama, Dollarama has planned on using mobile cash registers to tackle long line ups, a frequent compliant of shoppers. But  all that being said, Dollarama now has challenges, such as competition now from Dollar Tree. No doubt part of Dollarama’s success can be attributed to a lack of direct competition, until recently. Other problems, which are outside of the grasp of control of the company are the weak Canadian dollar has hamstringed some of its surplus that it provides to consumers.

Before I go on, I must mention that the dollar store occupies a crumple zone between frugality and anti-consumerism. Frequent trips to the dollar store are probably a tight facet in a frugal strategy, but looking at dollar stores through the optics of anti-consumerism says that they rife with products that end up in waste lands not long after purchase and proliferate unnecessary consumption through cheap knick knacks. Some of the worst offenses is the myriad of poor quality seasonal items – while of course there are notable exceptions, the dollar store is on point at generating seasonal garbage items.  Take a stroll down the seasonal aisle at Dollarama right now and be confronted with a inter-modal container worth of poorly molded plastic decorations designed to look like “creepy bodily organs” or poorly made mythical monsters to adorn your abode during the spooky month of October. The frugalist in me would suggest to look for decorations that are cheap at dollar stores if you were looking for decorations, but the anti-consumerist looks at these as ephemeral items, just months away from occupying a landfill or at best some remote corner of the house, gathering dust. Asides from the status of these products, there are other issues as well such as the bottom of the barrel wages that Dollarama offers its employees or the deplorable conditions these deep discounted items are made in and it should be noted that Dollarama is not alone its use of ethically questionable contractors.  Chasing cheap is an expensive endeavor, but not for consumers.  What cheap discounters do, is transfer cost from consumers to others, such as having people in the global south bear manufacturing costs or society bear cost of having ridiculously cheap items end up in the land fill.   These are real issues, but for now I will set them aside and address dollar stores through the optics of frugality.  In the future I will write more about the conflict between anti-consumerism and frugality.

As already mentioned, any serious frugal strategy will probably have a place for the use of the dollar store. I want to address a few ideas, the first is critiquing the status of the dollar store vis-a-vis social standings, the second idea is looking at the quality angle.

Some hold the view that visiting the dollar store is an admission of being poor and although it is a forgone conclusion – most people do not like to be perceived as poor.  The syllogism goes like this:  dollar stores are necessarily cheap ( or they wouldn’t be dollar stores), poor people shop at dollar stores because they cannot afford anything more expensive (This is untrue because wanton credit allows the poor to make irresponsible financial decisions, thus they can avoid looking like poor people).  In a general sense, in the pursuit of avoiding the appearance of being poor, people move themselves closer to be poorer by insisting on shopping at more expensive venues.  I do not think that avoiding the dollar store because of social status is a valid reason to avoid the dollar store, I will address this in another article forthcoming, but conspicuous consumption will lead to worse financial outcomes with only imaginary gains vis-a-vis social standings that will amount to rolling a boulder up a hill and watching it roll back down as the person will constantly have to arms race to stay on top. However some like, John Williams a retail consultant with Williams group says that there is no stigma what so ever shopping at the dollar store and he asserts that even some take it as a mark of pride to shop at Dollarama. To call it a mark of pride, may be a bit much.

At this point, some people may still insist the dollar store is insufficient for their needs and the previous decisions on the ostensible is of no bearing on some.  Some people may avoid the dollar store because of the lack of quality.  This is a valid point, but not universally true. Price is a very rough and imperfect way to judge the quality of a product, a product will not cost the amount it cost to make(obviously), a product will cost as much as much as the market will tolerate it. So a $700 I-Phone (the $130 price you pay at the carrier is a financed price and not the total cost) does not cost $700 to make,the I-Phone actually is estimated to cost $200 to make, yes Apple makes an insane amount of profit, this is why they are so valuable because legions of people line up to purchase them.  So it is safe to assume in most cases that an item that is priced at $1.00 cost less than a dollar to make (exceptions exist such as loss leaders).

However a comparable item at say, Canadian Tire that cost $10, could very well cost a similar amount as the dollar store item to manufacture, thus we can assume a similar level of quality. In my own anecdotal observations I noticed very similar biking accessories being sold at Dollarama were being sold at Canadian Tire for significantly more. One particular case was a handle bar mounted mirror, a nearly identical one was being sold at Canadian Tire for a significantly higher price. My point being is that price is a poor way to judge quality, my point is not to exonerate the quality of the dollar store but to elucidate that other `cheap, but more expensive than the dollar store items`are not better off in this regard.  Price is not a precise instrument to measure quality, but only a very rough proxy indicator.  There are a variety of items where the generic can perform similarly to the brand name. One good example of this is melamine foam, also known as “magic erasers” come to mind as an example of this (in this case you can do better than the dollar store by purchasing them in bulk on Ebay).  Consumers should be wary of mechanically complex items, or items that you intend to use frequently. A good rule of thumb is, if you are unsure if you will use a particular item frequently buy a cheap version of it first. However, the dollar store is hard to generalize, while it is sound advice to avoid mechanically complex items I managed to purchased a dash mount for a phone, and while it is complex mechanically it has held up well for now and beats the $20 at another retailer for a similar product. The take away is, while general rules of thumbs can help inform the myriad of choices to be made at the dollar store, there are seldom hard and fast rules to live by, exceptions live everywhere.

Dollarama has also appeared to be working on contracting out for their own manufacturing, this is evident by packaging with the price integrated on the label.  This has probably saved them money by cutting out middle men and has no doubt kept the price low. “House brands” or “in-store” labels are quite valuable to retailers so it is little surprise Dollarama is attempting to stock more products like this.

The last point to be made is that Dollarama has been selling liquidated stock which means you can get items that wouldn’t be typically sold at the dollar store for a fraction of what they would’ve been sold at for retail. Some particular items I’ve seen have been various National Geographic books, Raptor straps and water bottles which have a built in filter. The multiple price points Dollarama offers allows stuff like liquidated stock to be sold, so while many are upset (or were) that Dollarama has started “raising it’s prices” it has also allowed Dollarama to sell a greater diversity of goods.

Lastly I will close this article out by going over a general list of things to buy at the dollar store and things to avoid, this list has been built on my anecdotal experiences and some investigating on what other people look for and avoid.

Items to look for
  • Hygiene goods, soap, hand sanitizer, tooth paste
  • Certain dry foods, depends on the selection, candy, some canned food.
  • Dollar stores typically are excellent for stationary items, such as sharpies, pens, paper and other office goods.
  • Cheap holiday junk and cards.
  • Household cleaners.
  • Snacks for smuggling into the movie theaters.
  • If you like Amp energy drinks, Dollarama has been selling them reliably for $1.
ITEMS to avoid
  • Frozen foods, cheese.  There is an infamous video where a man buys a Dollar Tree steak and eats it.  Cheese is often mentioned as well as no-no items.  They are often sold as “pasteurized process food product’, or like this product. However this is largely moot because these items are rarely sold in the Canadian market at that price point ( I have yet to personally see any of these mentions items).
  • Complex items, for instance I bought a keyboard vacuum cleaner and it didn’t work that well.
  • I haven`t had much look with the long-handled objects e.g., brooms.
  • Electronics are hit or miss, I bought a battery bank from Dollarama and through some trouble shooting I discovered that the cable was defective.

____
links

Interesting CBC podcast (Ontario Today) on dollar stores “Are you a dollar store devotee?
podcast.cbc.ca/mp3/podcasts/ontariotoday_20150616_12905.mp3  [MP3]
Runtime: 00:39:35

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