A million one dollar idea

As Canada’s consumer price index rises to 7.6% (compared with a year ago), shoppers are flocking to discount retailers… and investors are following closely behind. 

Driving the news: South of the border, thrifty shoppers boosted sales at Dollar General and Dollar Tree by ~5% this year, according to recent earnings. In Canada, it’s a similar story. 

In a note released yesterday, BMO analyst Peter Sklar reiterated Dollarama as a solid stock pick for weathering inflationary times and raised his target for the discount retailer.  

  • Sklar notes that Dollarama's reputation for value will continue to be “a major traffic driver during periods of high inflation when the consumers' wallet is squeezed.”
  • There are even private Facebook groups like Dollarama Finds that boast ~325,000 members who share bargains, from computer keyboards to Paw Patrol backpacks. 

The numbers add up: Dollarama reported sales growth of more than 12% last quarter, over double that of its US counterparts, driven by higher foot traffic and consumer belt-tightening. 

Yes, but: It’s not just discount retailers that shoppers (and investors) have their eyes on right now. Luxury brands that cater to the incredibly wealthy are also thriving.

  • Kering (which owns Gucci and Balenciaga) and LVMH (whose subsidiaries include Dom Pérignon and Tiffany & Co.) grew revenue by 20% in the first half of the year.

Zoom out: Retail trends reflect the state of the economy. Higher prices and falling real wages push middle-income earners to hunt for bargains, while those who can afford to do so stick with high-end brands.