By Adriano Marchese
Dollarama is betting that its strategy in Canada and Latin America will succeed Down Under.
The Canadian dollar store chain's buyout of The Reject Shop marks its entry into the Australian market, where its competition is low and demand for budget household goods is high, analysts say. The deal, for about 259 million Australian dollars ($163.1 million), places the country's largest and only national pureplay retailer under Dollarama's control, giving it a solid foothold from which to build over time, RBC analyst Irene Nattel said.
"Similar to both Canada and Latin America, Australia is underpenetrated in discount retail, which in our view implies that the 700 store target by 2034 disclosed by Dollarama may be conservative," Nattel said of Dollarama's goal to nearly double The Reject Shop's footprint under its new banner.
The Reject Shop, which sells everything from food and beverages to household cleaning products, operates 393 locations and generated A$866 million in sales last year.
Dollarama's expansion into Australia follows its investment into Latin American competitor Dollarcity and its impending push into Mexico as the retailer pursues a global strategy to offer deep discounts beyond Canada's borders.
"We view this positively as it should complement its international growth opportunities in Latin America and forthcoming entry into Mexico," TD Cowen's Brian Morisson said of what he called a competitively priced deal.
Scotiabank's John Zamparo called Dollarama's move into Australia "a recipe for real growth," citing similarities in the consumer habits and economies of Australia and Canada, in addition to a store infrastructure that's already in place.
Still, there are wrinkles to iron out in The Reject Shop's supply chain and distribution network as full integration is still years away, Zamparo said.
"Nevertheless, we don't doubt that Dollarama can optimize this setup," he said.
Write to Adriano Marchese at adriano.marchese@wsj.com
(END) Dow Jones Newswires
March 27, 2025 11:03 ET (15:03 GMT)
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