In Dollarama’s ESG Report (June 2019) the Company assures us that:

While Dollarama imports a substantial proportion of its offering directly from China, our sourcing strategy blends directly imported goods from over 25 countries around the world. In addition, 45% of our products are sourced through North American vendors.

DollaramaStoreFrontMy guess is that ‘substantial’ means just that (Sales increased by 9.6% to $947.6 million for their 3rd quarter of 2019).  Dollar General (Net sales increased 8.9% to $7.0 billion in the third quarter of 2019) based in the US is no doubt facing a similar dilemma.

These chains have been the only real bright spot in a struggling ‘in-store’ retail sector.  It’s remarkable how many of us shop for certain items we know will be there at great prices.  I asked a young lady at my gym where she got her exercise band…”the dollar store”  My son needed a very small travel bag for his latest trip…dollar store.  From party favors to kitchen gadgets you can’t beat it.  But it is blatantly obvious from the stickers on these items that they’re sourced from China.

DollarGeneral

This is just a tiny sample of how much the China economy has penetrated our own economy and lives.  According to Statistics Canada, China is our 2nd largest trading partner behind the USA.  This trade has also been growing over the years.

But what is different from U.S. trade is that Canada’s relations with China are highly asymmetrical. China sold almost $70 billion worth of goods to Canada in 2017, mostly consumer items, more than three times what Canada sold to China, mostly raw materials. China makes more money off us than we do off it. (Maclean’s Jun 28, 2019).

In other words, we need China more than it needs us.  The diplomatic riff caused by our silly government arresting Meng Wanzhou, and then China retaliating by arresting two Canadians is a prime example – lost agricultural exports to China just makes our trade imbalance worse.

This scenario stemming from coronavirus does not bode well for the stock prices of these companies over the coming months.  Although they withstood the encroaching competition from the online behemoths quite handsomely, stocking their shelves in light of supply disruptions may prove more onerous.

 






 

 

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About the Author

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.

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