Dollarama to join e-commerce rush, with plans to sell its low-cost wares in bulk

Dollarama to join e-commerce rush, with plans to sell its low-cost wares in bulk
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Dollarama Inc. plans to add bulk purchases of its low-priced offerings to the e-commerce rush later this year as it looks to capitalize on the success of its bricks-and-mortar discount stores, the company said Thursday as it reported fourth-quarter earnings were up 17 per cent.

But as competitors, including Candian grocers scramble to launch online sales to compete with online shopping behometh Amazon, CEO Neil Rossy tempered expectations about the extent of the rollout and its profit potential.

“By no means are we e-commerce experts,” he said. “We’re taking our time and doing lots of data testing and we’re somewhat introducing a new concept.”

He hopes to launch the platform by the end of the year and might first offer it in “a province or two” to get more feedback before it becomes available nationally.

So far, he said the system is “up and running internally,” but is still being tweaked.

Dollarama plans to use it to sell items from all of the categories of products it stocks in its 1,160 stores, but Rossy warned that there will be some limitations.

“If you’re buying wine glasses at our store and you’re hoping to buy 400 wine glasses on our e-commerce site, it’s highly doubtful that will happen because the wine glasses, (with) the way we bring them in to our retail operation, aren’t built to handle drop tests for courier companies,” said Rossy.

“There’s a bunch of items that will drop off or be added or removed based on the practicality within our system, so that’s why it’s still a work in progress.”

As for whether shipping costs from orders made through the platform will be passed onto customers, Rossy said they’re “mostly hammered down but not enough that I’m willing to say they’ve put a final stamp on it.”

But Rossy added, how the company, which has been expanding agressively and on a revenue run even amid a dire retail landscape, will fare online is “a complete unknown”

The Montreal-based retailer’s executives said that 65 new Dollarama locations that opened in fiscal 2018 helped its fourth-quarter profit climb to $162.8 million, compared with $146.1 million a year earlier and boosted sales by about 10 per cent to $938.1 million.

To keep up with demand, the company said it will expand its distribution centre in Montreal by 50 per cent to about 500,000 square feet.

Rossy said Dollarama purchased two adjacent properties and the current centre, which was previously leased, meaning the expansion will ensure Dollarama owns its distribution operations in its entirety.

He hopes construction will be completed by the end of 2019.

But before that, in June of this year, Rossy’s father Larry, who founded Dollarama and is currently chairman of its board, will retire from the business. He will be succeeded by lead director Stephen Gunn. Kristin Williams Mugford has been appointed as an independent director effective immediately.

“My father being, let’s say, a seasoned retailer, has simply decided to slow down a little,” Rossy said. “It’s rightly deserved… he was still at the office every day of the week and I can tell you for a fact that he put in six hours last Saturday as well.”

In addition to taking on the e-commerce business, Dollarama will also have to defend its traditional bricks-and-mortar discount turf against China’s low-cost reatailer Miniso, which opened a handful of stores in Canada last year, but reportedly hopes to introduce 100 to the market by the end of this year and 500 in the next three years.

Neil Rossy said the company hasn’t seen any impact in locations where Miniso opened stores in the same mall as Dollarama.

“The actual competitive environment is relatively stable. It’s always very competitive,” said Rossy.

“From that perspective, whether there are new retailers coming into the market and other retailers leaving the market, we’re always attentive to all competition.”

It also rolled out technological initiatives to improve store productivity throughout its last fiscal year.

Among the new kinds of technology it is using are handheld scanners for store associates, which can improve efficiency, smart cameras in stores and improved data analytic tools that can help Dollarama identify and target “risk areas.”

Rossy said Dollarama next has its sights set on a new cash management process in stores to prove the efficiency of activities involving cash handling.

The company’s stock jumped as much as five per cent to around $163 per share Thursday after it announced the better-than-expected results and plan to pay a quarterly dividend of 12 cents per share, up a penny from its earlier payment to shareholders.

It also plans to split its shares on a three-for-one basis, subject to the approval of shareholders, which if approved, will decrease the price of individual stocks while increasing the number of outstanding shares, making it more attractive for retail investors seeking a small position in the company.

 

Companies in this story: (TSX:DOL)

Tara Deschamps, The Canadian Press

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