Discounters are profiting from a prevailing sentiment among consumers this holiday season: Give more generously by chasing bargains.
Early signs of the crucial shopping period point to consumers opening their wallets a little more, even shifting their spending to items people want - such as jewellery - rather than just merchandise they need. But many are heading to low-cost chains to accomplish their shopping goals.
The trends helped bolster the latest quarterly results of Dollarama , Canada's dominant dollar-store chain, and Costco , the top members-only bulk-buying discounter in North America. Both beat analysts' profit projections.
"People are looking for more value in this market," said Neil Linsdell, retail analyst at Versant Partners in Montreal.
Discounters are attracting a growing array of spendthrifts in the uncertain recovery. Many shoppers are engaging in what some call "surgical" shopping: painstakingly researching each purchase to find a deal. The shopping patterns helped drive up same-store sales (at outlets open a year or more) 8 per cent at Dollarama in its latest quarter, and 5 per cent (excluding the effects of currency and gas price fluctuations) at Costco.
In Canada, Costco's same-store sales were even stronger, up in the high single digits (excluding the exchange-rate benefit), David Sherwood, director of investment relations at Costco, said in an interview.
In a sign of the times, Costco boasted "standout" sales gains - in the low double digits - in such discretionary categories as jewellery and home decor, analysts were told. Those were the types of non-essential products that customers shied away from in the recession.
What is more, in its first quarter, the number of "executive" Costco members rose 3 per cent from the previous quarter, to 10.76 million. Executive members, who pay a $100 annual fee to shop at Costco and receive extra rewards, tend to spend almost twice as much as regular "business" members, whose annual fee is $50, Mr. Sherwood said.
"The folks who sign up as executive members are pretty solid spenders and renew at a higher rate," he said. They make up about a third of the chain's membership and a little over two-thirds of its sales.
Dollarama, which almost two years ago raised its top price to $2 from $1, is persuading more consumers to trade down to dollar stores, Mr. Linsdell said.
In its latest quarter, 40 per cent of Dollarama sales were made up of products that cost more than $1, compared with 27 per cent a year ago. And customers used a debit card in 32 per cent of their purchases, up from 30 per cent a year earlier.
The stepped-up use of debit cards signals higher spenders at Dollarama: Customers shell out more than twice as much when they pay with a debit card compared with paying with cash, company executives have said.
Still, the discounters can't count completely on improved consumer sentiment and smart merchandising to bring them cheer in the holiday period. Weather conditions still play a big role, said Larry Rossy, chief executive officer of Montreal-based Dollarama.
"We can get knocked around pretty badly with weather," he said, alluding to snowstorms in parts of Canada in the past week or so. "And when you're talking weather in December, that's big dollars."
2010 Third Quarter, to Oct. 31/Nov. 1 (2009 in brackets)
Profit Per Share
43 cents (2 cents)
COSTCO WHOLESALE CORP.
2010 First Quarter, to Nov. 21/Nov. 22 (2009 in brackets)
$312 million ($266 million)
Profit Per Share
72 cents (61 cents)
$19.2 billion ($17.3 billion)