5 Things Dollarama’s Doing Right

Can Dollarama keep customers coming through the doors?

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Discount retail shopping for everyday items is here to stay. In fact, it never really went away. Yesterday’s “five and dimes” are today simply called dollar stores.

Dollarama (TSX: DOL) focuses on keeping customers coming through its doors with value pricing, sizable stores with lots of shelf space, and a broad selection of merchandise. The company has 847 stores across Canada. Here are five things I think the company is doing right.

1. Identifiable brand

Most Canadian shoppers don’t have to drive far before they see the huge “DOLLARAMA” sign in bright yellow letters emblazoned across a forest green background. The company brand is easily recognized in strip malls, plazas, and such. Generally, clear front windows allow an unobstructed look into the aisles of its stores, with merchandise beckoning passersby. 

2. Fixed price philosophy

Currently, you won’t pay more than $3 for a single product at Dollarama. The company has a fixed price point philosophy. The price points across all its retail locations are $1, $1.25, $1.50, $2, $2.50 and $3. Customers are familiar with this and know going in what price stickers await them. Dollarama isn’t into “price surprises” or “sticker shock.” 

3. Substantial selling space

The key to retail success isn’t large backrooms with loads of merchandise collecting dust. The action is on the sales floor – for a company and its investors. Dollarama’s average store size is in the range of 9,800-9,950 square feet. More importantly, 80%-85% is available selling square footage.

4. A wide-ranging selection of merchandise

The company offers national and private label brands. These are further broken down into general merchandise, consumable products, and seasonal products. For its fiscal year ended February 3, 2013, Dollarama’s product mix was approximately 49% general merchandise, 37% consumable products and 14% seasonal products.

5. A focus on distribution efficiencies

Dollarama is focusing on getting products to its stores quickly. Keeping the shelves full is vital to its success. It has completed phase two of its distribution center automation project. The company stated that this “…will contribute to labour productivity and will give us the ability to supply more stores on a single shift.”

Foolish bottom line

Canadian consumers are “retail price weary” and they’re looking for full shelves and bargains, wherever they can be found. For those so inclined and close to the U.S. border, it often means a trip stateside. For those not so inclined, Dollarama’s a practical choice. The company is continuing to keep customers interested. Dollarama is worth investors’ due diligence as a Canadian retail stock.

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 Michael Ugulini has no positions in any of the companies mentioned in this article.

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