Walmart isn’t Target’s only competitive concern in Canada

Less than a year from today Target’s first stores in Canada open and the company encounters a familiar competitive challenge in Walmart as well as some unfamiliar operators.

Dollar stores in the United States have seen much success over the past decade (check out Retailing Today’s recent report on Dollar General here) and they appear to be doing just as well north of the border. For example, Dollarama, Canada's leading dollar-store operator with 704 locations earlier this week reported net earnings for the fourth quarter that increased 51% to $63.6 million, or 84 cents a share, compared with $42 million, or 56 cents a share, the prior year. Full year earnings surged 48% to $2.30 from $1.55.

“Once again, we recorded double-digit growth performance in sales, operating income and net earnings as well as a 7.9% growth in comparable-store sales,” said Dollarama CEO Larry Rossy. “We owe this achievement to the strength of our business model, the solid operating foundation we have built, the continued growth of our store network and to our team's disciplined execution."

Fourth quarter sales increased 14.7% to $468.7 million and the gain was driven by the addition of 52 new stores and a 7.9% comps increase balanced between average ticket growth and increased customer traffic. Full year sales increased 12.9% to $1.6 billion and same store sales increased 5.4%.

Target might like to think its differentiated product mix and upscale positioning insulate it from dollar-store competition, but the reality is competition is competition, and Target’s offering has considerable overlap with dollar stores. The dollar store channel is as hot in Canada (Dollar Tree and Big Lots both entered the market via acquisitions) as it is the United States.