(This post is long and may not be very interesting to you. This is not an actionable idea.)
Lately I’ve been trying to learn more about the retail industry. Two things about Dollarama struck me:
- Its returns on capital are very high. My 2013 post on dollar stores put Dollarama’s return on capital at around 57.8%, dramatically better than all of its dollar store peers.
- Dollarama is a technology backwater. Dollarama did not fully implement a point-of-sale system until 2011.
Dollarama has higher returns on capital than most other retailers out there, yet it’s not obvious why that is. My take is that Dollarama is really good at doing three things:
- Choosing what products to buy.
- Choosing what prices to sell that product at. Dollarama buys high-margin items and undercuts its competition on pricing.
- Cutting out the middlemen. Dollarama sources a lot of its product directly from manufacturers rather than going through distributors.
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