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Dollarama aims to keep it simple Add to ...

Larry Rossy's wife was irate when her husband arrived home late the other night, missing her freshly cooked stir fry. Why the holdup? The chief executive officer of Dollarama had been in the office trying on green leprechaun hats, sparkly green bow ties and other St. Patrick's Day paraphernalia to figure out what to stock in his stores next March.

The hat, along with some of the other St. Patrick's Day knick knacks, will cost $2, double the price of Dollarama's traditional $1 fare. It's all part of Mr. Rossy's effort to shift up-market - at least by dollar-store standards - while sticking to the same tried-and-true formula that has made his 18-year-old chain a star in a tough retailing environment.

"If you complicate this business, you'll outprice yourself," Mr. Rossy said. "You've got to keep this business simple - as simple as you can, which is what we've done from Day One."

While other retailers have struggled in a slow economy, Dollarama has prospered by avoiding complexity and by trusting in Mr. Rossy's ability to spot what sells. He takes a hands-on approach to everything from picking store locations to choosing what they stock. In his corner office, merchandise spills everywhere - on the floor, on his desk and on the sleek leather chairs. Mr. Rossy points to piles of paper plates, napkins and T-shirts: "My office is a buying office. This is what I do all day."

But as he strives to keep things simple, the business is becoming more complicated. And nowhere is that clearer than in Dollarama's move to more expensive merchandise. Introducing prices of up to $2, from just $1, requires price tags on products, new signs and automated inventory tracking. (The exception is candy bars, which are less than $1.)

The move to higher prices carries risk. U.S.-based Dollar Tree dropped a test of higher prices a few years ago, deciding instead to run a separate small chain for pricier discount products. Dollarama's Canadian rival Buck or Two failed in offering more expensive merchandise. It emerged from bankruptcy protection last December and is now revamping its strategy under new leadership.

"Obviously, it's risky," said André Perold, professor of finance at Harvard School of Business and author of a case study on Dollarama. "You may discover that people get confused and now, all of a sudden, they say: 'You're looking more like Wal-Mart,' and you start to erode your brand."

Mr. Rossy is determined to avoid such pitfalls. He has hired seasoned administrators to oversee the business, freeing him and his son Neil, the heir apparent, to do what they do best - select $2 all-cotton infant sleepers and porcelain serving dishes retailing for more than $1, rather than just jacking up prices on existing items.



So far, Mr. Rossy's wager is paying off. Since adding higher-priced products last year, Dollarama has enjoyed a sales jump of almost 8 per cent at stores open a year or more. In its latest quarter, those crucial same-store sales surged nearly 9 per cent while profit more than doubled to $22.5-million. Higher-priced products now account for roughly 35 per cent of sales.

Dollarama, which went public last fall, sees plenty of room for expansion. In the United States, there is one leading dollar store for every 15,500 people, while in Canada there is only one for every 32,000 people, according to company research. By far the largest operator in its sector in Canada, Dollarama can double its more than 600 outlets within 12 years, analyst Perry Caicco at CIBC World Markets predicted in a recent report.

Fuelling the expansion are cost-conscious new Canadians, Mr. Caicco said. Aging baby boomers also are drawn to the convenience of a nearby store rather than a big-box discounter. Dollar stores gain an additional edge because they can pick up cheap real estate that other merchants have abandoned for spots in power centres.

Today, in a recovering but fragile economy, Mr. Rossy is betting that customers are ready to shell out more for pet food and St. Patrick's Day items that he couldn't afford to stock previously for $1 - and that could still cost far more in conventional stores.

But his strategy hinges on the ability of Dollarama's buying team, led by Mr. Rossy and his son, to purchase the right product at the right price.

They travel to China twice a year on buying trips, building relations with suppliers. In Canada, they prowl mainstream stores for ideas to copy at a cheaper cost. A colourful striped placemat from the Bay sits on a chair in the CEO's office, inspiration for a future Dollarama tablecloth.

"Larry is an extraordinary buyer," Prof. Perold said.

To keep it simple, Dollarama today uses just three prices above $1 - $1.25, $1.50 and $2. Still, that adds a level of complexity from the old days, when almost everything was a flat $1. For the first time, Dollarama had to place price stickers on items. To ease the pain, it is gradually shifting the price-labelling responsibility, and cost, to its suppliers.

Dollarama started to allow customers to use debit cards to purchase their goods almost two years ago. The return on that decision was almost immediate: Customers spend up to 2.5 times more when using a debit card rather than cash. And debit cards are simpler to administer than cash.

Still, the same doesn't hold true for credit cards. Dollarama recently tested a program that let customers make purchases with plastic but the results were disappointing and the plan probably will be scrapped soon, Mr. Rossy said. "Philosophically it's important to keep it simple."

 

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