A point recently came to me, while I was writing up an article about Canadian discount store chain Dollarama (TSE:DOL). It had just bought The Reject Shop, an Australian discount store chain with plans to make it bigger and better. This was not the first expansion effort Dollarama had engaged in, either.
Previously, it had purchased a controlling interest in Dollarcity, a Latin American store brand of the same general vein. And when Family Dollar came up for sale, I was not alone in thinking this could have been a big play for Dollarama. But it passed. Why? Looking at the matter more closely, I found three good reasons why Dollarama did not make a play for what might have been the biggest discount market on Earth: the United States.
It Was Too Big
Family Dollar was sold to two private-equity firms for a grand total of $1 billion. That is roughly $1.384 billion Canadian, as of this writing. That sounds like a lot, because it is: reports note that Dollarama’s operating income for fiscal 2025′ was about $1.711 billion Canadian. That means Dollarama would have had to fork over most of 2025’s take to land the chain itself. And that would not have been the end of it.
The stores themselves would have needed quite a bit of fixing up, reports noted; Melius Research analyst Karen Short described how the owner would have to “…paint stores…change tiles…change shelving. That’s just day to day.” And indeed, that bill probably would have been substantial, as Family Dollar was sold off for a comparative bargain. Dollar Tree (DLTR) bought the chain in 2015 for $8.5 billion. That it was willing to slash its price close to 90% suggests an as-is-where-is sort of deal.
Price aside, there is also the matter of store count. Dollarama itself has just under 1,600 stores to its credit. Family Dollar had a little over 7,600. If Dollarama had bought in on Family Dollar, it would have grown roughly five-fold overnight. That kind of growth can be extraordinarily difficult, or outright impossible, to manage.
Too Much Competition
Bargain retailers in the United States are not exactly new. There are pure bargain plays, like Dollar General (DG) and of course Dollar Tree itself. There are adjacent bargain plays, like Walmart (WMT). And there are even kind-of bargain plays like many of the major retailers. When you take all of these together, suddenly, you face a maelstrom of competition that threatens anyone who would have competed therein.
After all…Dollar Tree got out of Family Dollar because the “transformational opportunity” it hoped for never materialized. It therefore made sense that Dollarama would not wish to take a stab at the market itself, using the very vehicle that took Dollar Tree down with it.
Too Much Oversight
Yes, we know that the current Federal Trade Commission is not the militant one of Lina Khan, who seemed opposed to mergers and acquisitions on an almost ideological basis. But even the current FTC might have looked askance at a deal that brought in a Canadian retailer to United States markets.
Throw in the recent tariff headaches, and the ability of a Canadian discount retailer to even restock an American discount retail location might have been too much to bear. The whole matter may never have gotten past the FTC to begin with, as some cite discount retailers as bulwarks against so-called “food deserts,” areas that do not have reliable access to retail food. Throwing that into the mix may well have brought national security concerns into the issue, much the same as Alimentation Couche-Tard (TSE:ATD) faced when trying to buy 7-Eleven.
Is Dollarama a Good Stock to Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on Dollarama stock based on five Buys and three Holds assigned in the past three months, as indicated by the graphic below. After a 49.16% rally in its share price over the past year, the average Dollarama price target of C$173 per share implies 3.1% upside potential.
