Why Dollarama still won’t accept credit cards in its stores

September 12, 2013 Leave a comment

Why Dollarama still won’t accept credit cards in its stores

Hollie Shaw | 13/09/11 | Last Updated: 13/09/11 3:17 PM ET
TORONTO – Dollarama executives are not convinced they should allow customers to shop with credit cards at Canada’s biggest dollar store chain. The company, which introduced debit cards as a payment option in 2008, has run pilot tests of credit card shopping through some of its point of sale terminals, but chief executive Larry Rossy said Wednesday he is not sold on accepting the debt-funded plastic.“We weren’t convinced by the results, [and] I am still not convinced by the results by listening to the credit card people, who can convince you of almost anything,” he told analysts during a conference call to discuss strong second-quarter results.

“I think we are in a special niche with our price points. I am not convinced that it is going to migrate a lot of the cash to cards. And there is a cost to it.”

Many small and independent retailers have long decried the merchant fees they have to pay credit card issuers in order to offer the payment to consumers, in particular fees associated with so-called ‘premium’ cards that offer customers cash back or travel points. The fees range from about 1.5% to 3% on each purchase, and cost retailers roughly $5-billion a year. But a Competition Tribunal ruling in July dismissed a complaint that Visa and MasterCard engaged in anti-competitive behaviour by requiring merchants who accept their cards to accept all varieties of the cards, prompting business groups to urge the federal government to regulate the merchant fees.

Chief financial officer Michael Ross added the company will continue to assess the strategic merit of accepting the cards. “No decision has been made. We will only introduce the credit card if the incremental sales offset the cost of any credit card launch, and include factoring in any cannibalization of debit transactions. As the rates get more interesting from the credit card providers, it brings us closer to a positive business case.”

The Montreal-based retailer posted a 24% rise in earnings for the period ended Aug. 4 of $59.8-million, or 82¢ per share, up from $49.8-million (66¢) in the same period a year ago. That topped analyst estimates of 79¢ per share, according to estimates from Thomson Reuters.

Same-store sales, an industry bellwether of retail strength measuring volume at locations open for more than a year, climbed 6.2%. Second-quarter sales rose to $511.3-million, a 16% increase over the same period last year. Mr. Rossy said summer weather seemed to dampen sales of seasonal merchandise, but overall volume rose thanks to revenue from new outlets and strong consumer acceptance of its $2 and $3 price points on some goods.

The company said its ongoing store opening blitz has decreased its margins slightly, with gross margin reduced by about 0.2% in the quarter, but predicted the impact will fall over the next two quarters.

Dollarama added 93 stores over the 12 months ended Aug. 4, including 22 in its fiscal second quarter, bringing the total across Canada to 828. It will open a total of 85 stores this fiscal year, hitting core markets in Ontario and western Canada where dollar stores are underrepresented.x

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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