The Canadian Investor - Tier Ranking 12 Discount Retail Stocks From Best to Worst

Episode Date: September 28, 2026

Discount retailers are benefiting as consumers increasingly look for value—but not every discount business is created equal. In this episode, we rank 12 major discount retailers from S to F tier based primarily on business quality. We look at margins, returns on capital, competitive advantages, private-label strategies, store expansion and the business models that separate the strongest operators from the struggling ones.  We also dig into why TJX’s opportunistic buying model is so effective, what makes Costco and Walmart difficult to compete with, and why aggressive store expansion has backfired for some retailers. Stocks discussed: DLTR, DOL.TO, FIVE, DG, SVV, WINA, TJX, TGT, WMT, COST, MRU.TO, L.TO Subscribe to our Our New Youtube Channel! Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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We use it for our own business, and it's the first account that actually helps our money work harder while keeping operations simple. Check it out today at eCubank.ca slash business. They had to close 130 stores, lost $7 billion, $18,000 jobs. Absolutely nightmare. Sales grew at a massive 23% in their latest quarter. They've grown comparable sales in the double digits for the fifth straight quarter. This is absolutely crazy.

I couldn't believe it because this is a company that's been around for some time. And to be able to do that makes them such a compelling play is that they're a bit of a vulture the way they are. operate. It's an amazing business model. So think about winners. So you might go to winners and you'll see like these pair of shoes and there's size six, seven and 13. That's all they have. But what they end up doing is they're essentially opportunistic when large retailers or large clothing companies have too much inventory and they need to get rid of it. TjX can just swoop in and say, well, take whatever. We don't care if you have weird sizes available, even like sometimes weird. weird colors. They've had instances where the original price tags for the new item was still there

and their price was higher than the original. It doesn't look good, right? You're supposed to be like kind of a thrift store, secondhand store, and you're selling things more expensive than people paid for it. Welcome to the Canadian investor podcast. I'm Simone Belanger. I'm back with Dan Kent. We have a really fun episode here. We will be tier ranking discount retailers. So it's a really fun episode to do. I think people will enjoy it because, you know, it's fun to look at. There is visual. It will be available on YouTube.

So make sure you subscribe to our channel if you haven't already. And just some quick housekeeping. If you're looking for more content from us, you can also go on Join TCI. You get both episodes every single week. The Monday episode is also released early on the Patreon page. So on JoinTCI.com, you get our full portfolio. dates every month, along with my parents' portfolio update that I do on the 15 of every month, plus the podcast audio feed without any ads.

So if that's something you're interested, it's $15 a month. You go to join tCI.com. If not, we just appreciate if you can give us a like and subscribe on YouTube or just give us a five-star review on the podcast platform of your choice. It does help us find some new listeners and grow the show. But now back to this, Dan, I'm pretty excited. There are some names. Like, we will not be doing a deep dive for every single name.

Yeah. There's 12 names in total. We'll go over the 12 names quickly now. So there is Dollar Tree, Dollarama, Five Below, Dollar General, Savers Value Village, Winmark, Tjax, Target, Walmart, Walmart, Costco, Metro, and Loblo. And we will, we know some of the names people might be like, oh, how is that a discount retailer? And we'll specify why they were included in the list. But anything you want to add before we get started?

No, it's just kind of a good mix of like you got the dollar stores, then you got the retailers, then you got kind of the grocers or staple type companies. So it should be pretty good. There's a lot of actually very good businesses hidden in here that even I didn't know about before we started. There's one that really surprised me. So we kind of split the like the companies. So we'll have each have six. We'll go back and forth.

We tried to group them together. So we'll start off with the dollar stores and then kind of the, I guess, secondhand stores, moving into more of the clothing retailers, general merchandise, and then obviously going into the grocery stores. And I'm sure there's some that we may have omitted from the list, and especially grocery stores in the U.S., which I'm not as familiar with. I'm sure there are some discount ones too. But overall, I think it's a good one.

And now just a quick note, some people might flinch at hearing Loblaws or Metro. So there's a couple of things. So we focus really more on the food brand of these two. So Loblaws does own, of course, shoppers drug mart. I would not consider that a discount retailer. I don't think you would either. Same frame for Metro. They do own Gancoutou in mostly in Quebec.

So I would not consider that a discount retailer that's part of it. But Loblaws has about 50% of its brands, of its stores, that are between no frills maxi and no name banners. So those are definitely discounts. And Las Blas have been essentially the new stores they've been opening in recent years. I've almost all of them been the discount brands. I know on the Quebec side, I think they've converted or they're converting all of the provigo that there were to pretty much Maxis.

That's just an example. And Metro in terms of its brand, it's a bit less. So it's 28% of its stores that are more. more on the discount retail under the Food Basic or Super C banner on the Quebec side. Yeah, La Blah, there's a reason why the stock chart looks the way it does, and it's mostly because of that discount, kind of the discount presence they've had over the last five years or so here as a lot of people head to those stores. So it is a discount grocer for sure on the food side of things. Exactly. And we'll really be looking mostly as the businesses. Maybe we'll talk a little bit

about the valuation at the same time. We thought about doing it like two rankings in terms of which ones are the best businesses and which one have the best potential for investment returns. But I think that would be too long. Yes. I don't think it would be efficient in time. So we'll focus more on the best businesses, but it doesn't mean that we won't talk a little bit about the valuation too.

So just keep that in mind. For those on audio, we will have and those watching on YouTube. So we have, what is it, seven tiers. So S-tier being the top of the top. And then we have A, B, C, D, E, and F in terms of the other tiers. I'm not sure if we'll have a name for every single one. We're kind of will be spitballing, like doing it as we're recording, selecting where we'll be putting the name.

So keep that in mind. We haven't rehearsed that part. So it'll be interesting. We'll probably have to compromise like any good marriage. We'll have to compromise a little bit. It should be fun. Now let's, we'll get started here. So the first one that I'll go over is Dollar Tree.

So in their most recent quarter, comparable sales were up 3.7%. And I tried to use the similar kind of metrics when looking at all of them just so it makes a bit more sense. And I thought as I was doing this, I actually had the Dollar Tree here. There you go. I had it ready to go. it's the only one I didn't have ready to go. So for those on YouTube or those that are not watching,

we'll just be showing also kind of a chart with the numbers of the company, just so people get an overview. Here, it's kind of difficult to show all the metrics we'll be talking about at the same time because we don't have a producer here. So they've, coming back to Dollar Tree, it's ticker DLTR, they've kept those comparable sales at more than 3.5% since mid-2020. So it's been going well there. And they said on their most recent call that consumers are increasingly turning to dollar tree for everyday essentials, looking to stretch their money further.

And they are increasing their multiple price offering. And that's something we talked about recently when we did the earnings overview here where they were typically trying to keep things as close as possible to $1. But now they have kind of higher price points as well. But really focusing on the value for consumers. They are also looking to expand their private label brands. And that is something I put a lot of weight in for a lot of these companies is do they have private label brands? Because that allows them for the most part to offer cheaper alternative to consumers while keeping the margins relatively intact. So I think that's a great value offering and should do well as we enter.

And I think that's the big theme here is that we're getting into a key shape economy. And you're getting on the conference calls of a lot of these retailers. and they're saying people are trading down. People can't afford a lot of the necessities or they have to trade down or they have to make tough choices. So that's why these discount retailers are really important. And they continue back to Dollar Tree to optimize their operations with their gold standards. So grand openings look daily because they are aware that not all their stores look pristine when you go into them.

And they are actively working on that. And it's really a play. It's a bit more of a turnaround play almost, I would say. It's an established company, but they also had a laggard within the company, Family Dollar, which they sold about a year, year and a half ago at this point. And now they're really focusing on this business. And the return on invested capital of 8.5% over the last five years, that's the average. So not bad at all. Gross profit margins between 34 and 39%, which is kind of typical here for the dollar stores. I haven't looked at dollarama. They might be a bit higher, but for the other ones I looked at. Operating margins between 8 and 13% looking at the last five years. Freakastful margins between 6 and 10%. And they're looking to open 400 new stores this year while closing 75 underperforming stores. So for me, this one is really an interesting plate. Dan, what's your first kind of instinct in terms of putting them on the list here? You, you tell Tell me and then, I'll tell you what.

I would be putting, I mean, if you're looking at business quality, I'd be putting just sheer quality of the business. I'd probably put Dollar Tree in like the C tier or the B tier. Yeah, yeah, I think that's what I had it in mind was kind of in the, we can go C tier. In terms of investment, I think this is one of the most compelling plays right now. Yeah, that's on the flip side. Yeah, exactly. This is strictly business quality. No, exactly.

Just a quick mention though, as an investment, I think it would probably be a B or A if you factored in valuation because evaluation for this one is quite cheap. I mean, it's trading at a 16 forward P here and price earning growth of 2 and 18 in terms of price to free cash. So for a discount retailer, that should be doing quite well in this kind of environment like I just went over. I think it's a very reasonable evaluation to pay for. I've been thinking about doing a Quebec City trip where I bring my mountain bike and the family tags along. I could spend part of the day riding while my wife and my daughter explore the city,

walk around the old streets, stop for ice cream, and burn that energy in a beautiful park. Then at night, we'd all meet back up, go out for dinner, and make it a family trip. And while we're doing that, our home in Ottawa would just be sitting empty. That's when it hit me. Listing our home on Airbnb just makes sense.

Someone else could enjoy our place while we're away, whether they're here for a summer weekend, visiting family, or coming in for a big event in this city. They could explore the Rideau Canal, take the kids to the water park, catch a CFL game downtown, or just use our place as a home base to experience Ottawa like a local.

The extra income could go right back toward our own trip and we can choose to host only when it works for us. Your home might be worth more than you think. Find out how much at Airbnb.ca slash host. So let's move on to your name just because if not, I feel like this will take it. Yeah, we're going to run on forever. We're going to run out forever. So for you would be dollarama.

So the well-known Canadian name. Yes. The largest dollar store chain in Canada. So we're looking 1,700 plus stores. Next up would be Dollar Tree. and they only have 275. So, yeah, you can kind of tell the exposure, the dominance that Dollar Rama has in Canada.

A lot of people think of business like this is relatively simple, but Dollarama does a lot of things right and has kind of built a foundation that is very hard for another store to replicate. So the company directly imports pretty much half of its volume from overseas China, for the most part. That's not, shouldn't be a surprise to a lot of people. This is the same as something like Dollar, tree, but the company's real edge is in SG&A expenses. So sales gen and administrative expenses,

in this instance, Dollarama, they run the most razor thin operation you can imagine in this space. When we look to their SG&A expenses as a percentage of revenue, it's 12.6%. So this is less than half a dollar tree. So ultimately, when you're saving money in that regard, it flows generally right to the bottom line. And the way they do this is the company intentionally limits products in the store. They're way, like if you ever walk into a dollar tree and a dollarrama, the dollaramas are way tinier. They don't have as much product. So it needs to hire fewer people. It can acquire cheaper real estate. It can keep a tight distribution network. So it's kind of where it excels in that report, that area. And the other thing I guess I'll say is dollarama has had the added benefit of

operating in Canada and Australia to a certain degree and then Latin America. I think especially with the competition, it would be nearly impossible for them to run like this lien in the US. So although it does kind of crush the other dollar stores in terms of margins, I think it's a bit of an unfair comparison. The other element for dollarama that makes it so successful is the fixed pricing aspect. So a lot of customers of dollarama and I've heard this numerous times, myself. They kind of feel like a sense of loyalty because dollarama really doesn't raise prices.

But I mean, don't kid yourself. They're not in the business of quantity. Yes, exactly. That is the, that's probably the most genius model out of this business because a lot of people feel like you gain like a trust as a retail shopper to go to this place because they're not gouging you. You know what I mean? But they're, they're doing it anyway. So they carry a very low. limited amount of products. So when a supplier they, let's just say buy, you buy cups from, like let's just say kitchen cups for like glasses.

Like they'll, if they got to raise prices on those, Dollarama will instead just say, okay, put three in a box instead of four. And they have such large relationship with a lot of. That's what it is. They have a lot of

relationships with these distributors that they've been working with for 30 plus years to the point where they say, okay, for you, we're going to take it. We'll reduce the box size. We'll ship it to you. And then dollarama doesn't need to raise the price. This works.

It has worked for a very long time. The one reason I would want to see them, so they've expanded in Latin America, but that's not really, they operationally have a say in kind of Dollar City down there, but they just own a majority share majority of it. And then in Australia, obviously, it's a turnaround, a big turnaround play there. In terms of ranking, I would put this one in the A tier just because of the margin profile. The only reason I would not put it in the S is I would say it would get bumped up to S if they actually take those Australia operations and turn them around. But I'd like to see them like succeed well outside of Canada before I would ever test here.

That's a fair point. Yeah. Okay. No, I was going to say, like to me, I probably would have put them in S here, but that's a fair point. They are, they're trading very expensively. I know we're just looking at the best businesses here. I think they're second to none when it comes to dollar stores in Canada, but you have a good point. They are expanding outside of Canada and you have to see whether the business model will work well in those countries.

And I think that's TBD. And A, I think is a solid spot. I mean, it's just one shy of S here. So definitely agree with that. Anything else you want to add before we move on here? No, that's it. I just like I don't want to play them down as a business, but like Canada has been a relatively easy path for them.

So yeah, if they do it elsewhere, S tier all day. Okay, let's go. So let's move on here to five below. Not that I want to cut you off, but. No, no. If we run a type go. Yeah, exactly. If we go too long, plus I have a medical appointment after this that I can't miss.

So we got to get going. So five below. this was interesting. I didn't look at it in quite some time. So sales grew at a massive 23% in their latest quarter. They've grown comparable sales in the double digits for four straight, or actually this was the fifth straight quarter with the most recent one coming in at 14%, which is kind of a while. Yeah, like I just, I'm showing here comparable source store sales. Like this is absolutely crazy. Like I couldn't believe it because this is a company that's been around for some time and to be able to do that. But you'll see a bit why they've been able to do it.

I mean, props to them. But I just did not. I had to double check the number. Yeah, because most of these companies are a third of that, if that. Yeah, exactly. They're not growing. Like, if you get like mid single digits, like that's pretty solid, even for discount retailers. So they attributed this to the ability to identify emerging.

Trans early. What makes five below different than some of the other dollar stores that we're talking about here is they really focus on the younger consumers. So think kids, teenagers, young adults, and parents shopping for kids and teenagers. So identifying trends quickly is really important for them. And that's really where they're different from the other types of dollar stores. They have a return on invested capital that's pretty solid at 10.9%. over the last five years. Gross profit margins. Again, same kind of margins here as a dollar tree.

So 35 to 40%. Operating margins typically between 8 and 13%. Free cash flow margins between 1% and 9%, but they have been trending higher over the last few years. And they've also been selling because it's five below. So you think, okay, they're kind of stuck at $5. But they have been selling products above $5. But the key here is that as long as they provide,

good value to the consumer overall. They found that consumers have their customers have responded well to that. They've also simplified their product pricing over the last a year or so with whole price points. So think $1, $2, $3 and not like $150 or 175. So they found that that resonates better. I mean, it's something that a dollar ram is already doing. I don't think I've, I don't recall seeing anything.

I guess they might. but for the most part it's just a whole dollars, right? It's not like one. No, they have like point. Yeah, they'll have like stuff that's like 425 or whatever it is. Really? Okay. Okay, maybe not.

But I guess that's maybe that's a new strategy that dollarama could use. Obviously skew the pie prices up. I'm sure that's what they would do. And they are opening new stores pretty rapidly as well with 52 new stores in the previous quarter and reaching a total of 2,000 stores now. So this one, again, valuation. know we're not looking at that. It's actually like not that bad on the valuation standpoint. So Ford P of 22 and Ford price to free cash flow of 21. And I guess the last thing here is they

don't sell as much like food products as a dollar ram or dollar tree. They do sell food, but it's more kind of snacks type of food. That's what I would have guessed because if you look to the comparable sales when inflation was really high, like five below didn't see. any benefit. Like they were growing at like a two to three percent pace. Whereas we all seen like dollarama was like nearly, it was like 15 plus percent. And I would have guessed like the first thing is food because a lot of people were kind of trading down on those types of items.

But they seem to be seeing it now. They're catching up. Yeah, exactly. So I mean, I think for me, I don't know the business super well. So I'm kind of hesitant to put in the same tier as dollarama. I think I would probably put it in like a B tier. right now. I don't know if you agree with that just based on what I went over. Just because I think with a comparable sales have been nice, but it's only been five quarters. So I think I'd want to

see them not necessarily in the double digits, but keep like high single digits at least for maybe another year or two before I put them in a potentially S tier as well. So that's my my read on it. Do you agree with that or? Yeah, I tend to agree. Like when you look to the, it would be hard to put it in the same as dollar ramma just because of the margins and it's growing faster but who knows when that'll kind of stall out it's it's a weird element i'll have to dig into why they're growing so much faster than everybody else but yeah well i mean it sounds like they're identifying trend and is the the target customer right it's just different so i mean yeah sorry and i'm not hard to disagree so let's move on here to your next one so continuing in the dollar store so dollar

general yeah so dollar general is a discount retailer, but it's also not really one you'd bunch in much with dollarama because most of its sales are consumable goods like milk, egg, eggs, medicine, cleaning supplies, all that type of stuff. So the company's, the company had a location-based strategy and it seems like it would work in theory. So the majority of their stores are in very small towns scattered across 20 across the US effectively so they have 21,000 plus stores 80%

of them are in towns with 20k or less people so the company has so many stores which is I will explain which is what I feel is going to be the not necessarily the downfall of this company but why they've struggled so much 75% of people in the US are within five miles of a store

crazy they have a lot of debts on too and that's the only the other thing I forgot to mention for five below, five below's balance sheet is there's not much debt on it. Like it's, I think they have like, yeah, very little debt compared to Dollar General. So it has an EV of 40 billion and market cap of 26. So that's, yeah. This is the first, in my opinion, mess of a company. We've kind of come along.

Okay. The difficulty with Dollar General compared to other stores like Dollar M or Dollar Tree is it, it imports virtually none of its own goods. Because we're looking at dollar am a dollar tree. They're like 50% of the stuff they directly import. Dollar general is less than 4%. So you just have a middleman that's taking a chunk of your margins in this case. It's not a very good situation.

I don't know why this is. But yeah, they're seeing just continual declines in terms of operations. So comparable sales have been low for quite a few years. Revenue and earnings growth are slowing. The company used to have 10% operating margins before the inflationary period in 2022. They've never been able to recover. So operating margins are sitting at pretty much half of that now. They are improving comparable sales or also recovering operating, but it's just not really

the same business it was pre-COVID. And most would have come to the conclusion. And I did myself that inflation kind of killed the margins from just product sourcing whatever it may be, but this was a company that, and I know if you can put up the store counts, put up, if you put up the operating margins with the store counts, you'll kind of see what I mean here, but this was a company that expanded way, way too fast, in my opinion. So their main competitive edge was just kind of being the only store around. And how do you keep that edge? Will you have to build more stores? But you're going to notice, if you get that chart up eventually,

hear that right around when the company started expanding is when operating margins started taking a fairly big hit. So if you scale it back, like look at that. So you have the massive surge in stores and then operating margins that were effectively cut in half. So they went from from 2018 to 2026. They went from 14,500 stores to effectively 21,000. And then margins just just effectively collapsed. So, and it's really not that hard to figure out. Like, more stores equals more operating expenses. So in 2016, they had around 92 million square feet of stores.

By 2026, it had 160 million, 73% increase. However, their sales per square foot only increased by 19%. So, yeah, not good at all. I'm not a huge fan of this business. Like, I don't think the moat will ever last. E-commerce grocery delivery is so common. now. Like if you're right beside a dollar general, but another grocery store 10 minutes away, we'll pack up your groceries and put them in the, even put them in the trunk for you.

Like the moat is is gone, in my opinion. This combined with the bloated store counts, which came with a lot of debt is, is pretty ugly. There's a chance for a turnaround, I guess you could say, but like, I don't know how they do it because all of this spend on a massive amount of stores that just aren't seeing any. sort of results. Yeah, they basically have to just do a whole restructuring and say, okay, we're eliminating any store that's not, you know, as like profitable on a, like, certain level. Because to me, it does look like, they're like, okay, we're just going to expand. Instead of expanding strategically and slowly and picking your location, it feels like they didn't necessarily,

and I don't know the business well, but they probably did not pick the locations all that well. Yeah. I mean, if you look at like 2021 to 26, they added like over 4,000 stores. How do you even do that in five years? That's wild. Impressive. It's impressive. It's not in a good way.

In terms of ranking, I'd be probably E. Yeah, I was going to say E or F at this point, especially with the amount of debt that's definitely concerning for a business. That's not doing all that well. So yeah, no, I'm with you there. Again, I don't know the business extremely well, but yeah, just some of these issues that you mentioned. So let's move on here to some of the reuse store, secondhand store, I think is the best way to say it. So savers value village, ticker SVV.

So this one, comparable sales growth, I've been all over the place since the IPO, which was, I think, in 2022 or 2023. Comparable sales have been all over the place, but mostly trending down. In 2024, Canada comparable sales were down 4%. So that took a big hit here. And the stock has not been performing really well. It's down 60% since its IPO. So it's, yeah, it's not been a good investment for investors. And you think in this kind of environment where people are pinching and trying to extend

where their dollar goes, they would have done better. The problem with this model is that it's just very hard to price items that are donated. And that's one of the big issues. So you need labor, so you need employees to do that. Again, they said they've put in something like a system that helps them price things, but then again, it's still very difficult. And they've had, I know I've seen this. I don't know if it was on CBC or somewhere else where they've had instances where the original

price tags for the new item was still there and their price was higher than the original. No way. Oh yeah. I've seen that. Yeah, yeah, for sure. And that, like, you know, sure you can say inflation a little bit, but it doesn't look good, right? You're supposed to be like kind of a thrift store, secondhand store, and you're selling things more expensive than people paid for.

It's just the look is not good, but it also is a testament. to the pricing difficulty here. They've been opening 10 to 20 stores per year in the last few years. That can be a problem because it's not easy to open a new store. Think about it. If they open a new store in your city, first of all, you might not know they've opened a new store. You may like just not think about bringing stuff there that you need to get rid of, that you need to donate. So it takes time to establish that donation and sourcing relationships.

So that is one thing that they've struggled for is that new stores can actually weigh on the performance of the business. Whereas it's not necessarily something that you see with other types of business. The return on invested capital has been fine at just around 10%, 9.9 over the last five years. Gross margins are high because of the model type, so around 55%, because obviously people are donate. the items, but operating margins I've been trending down from 10% to around 8%. And freecastle margins are in the low single digits. So this one, I mean, in terms of ranking it, for me, I'd probably put that in the D tier. It's not the best kind of models.

The stores, like the ones that we have in Ottawa I've been to, it's not also like the best experience. It's kind of a mess in there. even compared to other thrift stores. So I think I'd put that at a D right now would be, yeah, where I'd land. What about you? I would agree. Most because, like, I don't know a ton about them, but the one that I'm going to go over next kind of follows a similar model, but does it like very well.

So that's probably why, yeah, D is, is pretty fair. I've been thinking about doing a Quebec City trip where I bring my mountain bike and the family tags along. I could spend part of the day riding while my wife and my daughter explore the city, walk around the old streets, stop for ice cream, and burn that energy in a beautiful park. Then at night, we'd all meet back up, go out for dinner, and make it a family trip. And while we're doing that, our home in Ottawa would just be sitting empty. That's when it hit me. Listing our home on Airbnb just makes sense. Someone else could enjoy our place while we're away, whether they're here for a summer weekend,

visiting family, or coming in for a big event in this city. They could explore the Rideau Canal, take the kids to the water park, catch a CFL game downtown, or just use our place as a home base to experience Ottawa like a local. The extra income could go right back toward our own trip, and we can choose to host only when it works for us. Your home might be worth more than you think. Find out how much at Airbnb.ca.com slash host. Okay, let's move on to your next one here.

Yeah, so we're going Winmark. So this one is, it's a very unique business. So it's a franchisee. So you own the store and you pay Winmark a 4% to 5% royalty. But what makes it unique is that, again, it's kind of the same situation, but the products come from the customers, not suppliers. So it's like the ones that I've been to, it's like I think of it like a pawn shop for clothing. Yeah.

So you go in, they look at the quality of your clothes, and if they like them, they'll buy them from you. So they own things like Plato's closet, Once Upon a Child, and play it against sports. So play it against sports will take your old sports equipment. And I mean, I know just having 10-year-old or 10-month-old twins, like I have been to Once Upon a Child quite a few times. Yeah, yeah, yeah, it's my wife's favorite store. I mean, you can, you can go into these clothing stores and, like, you see stuff that has been used.

Like, you can tell it's been used like once or twice and you, you just get it at a fraction of a price. So, like, these stores will, let's just say, pay the customer $1 for a piece of children's clothing that that customer paid $10 for. And then they'll sell it to somebody else for $3. And the people who are buying it thinking they're getting a great deal. which they kind of are. I think that's the difference with Value Village, right? Like there you just like dump your stuff. Yes.

And like they take it for free. But that's like also a problem in itself because you need employees to sort that out to the price act where I feel like bringing it here, sure they might give you something in exchange, but they actually are much more selective and take on stuff that will actually sell. Like I didn't look into it, but I'm assuming that Value Village probably has. like pretty high bills for waste collection. Oh, waste.

Yeah, they must like throw so much stuff away because they receive a bunch of junk too. And yeah, the the limitations for like what you can bring. I only know about the children one. I don't know about the sports one or Plato's closet, but the children one, like they will not take anything that is not in top quality. Whereas yeah, value village, you can just put a box outside the store of random stuff and they'll take Like the operational nightmare of that. Yeah, it's clothing's a little bit easier too because it could largely be donated

if it couldn't get sold there. So, but yeah, you with this model, you're eliminating virtually all the risks of a retailer. Like there's no tariff exposure. There's no freight exposure. There's no China exposure. There's no lead times on inventory. And then they're a royalty company. So they hardly ever take this anyway.

But the other thing that makes it this model genius is the supply gets better. as your consumer is in higher demand. So when the economy is in the tank, people sell their stuff. And when the economy is in the tank, people trade down to these stores. So it's kind of a, it's a double tailwind. Because of the royalty model margins are very high. So the operating margins are 64%. They've expanded by nearly 8% over the last decade.

Earnings have also doubled over that time frame on only a 16% increase in store count. So they're doing the opposite of dollar general. company gives out massive special dividends though so you're talking like $10 a share last year $7.50 the year before the one thing like where I would put it with this type of model I would probably put it in the A I do like the model if you look at like a lot of people will look and see a big dip in share price I think that's just kind of a situation where this company absorbed a lot of again trade down traffic over the last while here and now that's kind of being absorbed and they're they're kind of taking it on the chin right now but it's the business model

is is genius like they they run the royalties and these the the franchisees just they don't have to manage a lot of the expenses of a of a normal retailer no i like it i mean based on what i know of it i think i like it way better than value village if we're comparing the two so uh no i like it very small company though as well it's only about a billion in yeah exactly yeah that's right I forgot about that. So, no, that's a good one. Let's move on here to the next one. One of the, I'm going to say this one, I might have a hard time not putting into S-tier.

So I'll go over. I think it's a phenomenal business model. So TJX companies, so TJ Max, I'm sure a lot of people are familiar with it. This is a company that owns brands like winners, T.J. Max, Marshall's, Home Goods, and Home Sense. They have other brands as well. Since 2000, since 2020, comparable sales have been anywhere between 3 and 6%, which is definitely very solid for this kind of retailer. They've seen consumer transaction increase across all of their brands in the latest quarter

they had. So I looked at the call. For several years, they've been opening 100 plus stores per year. Their return on invested capital is just phenomenal. 22.9%. Yeah. So that's over the last five. years. Margins are looking very good. So gross margins are actually trending up from high 20s to

low 30s. So you're like that's that's something I did not expect to see. And I'll explain a little bit why here. And I was talking to you about it. And you were like, oh, I never thought about it. That's the way for this company. But if you look for those on YouTube, you can clearly see over the last, I would say like four or five years, like free cash flow margins, operating margin, gross margins have all been trending up. So operating margins around 10 to 12 percent again trending up. Free cash flow margin, they were as low as 4% in 2022. Now they're 9.4% over the last 12 months. So really solid there. And what makes them such a compelling play is that they're a bit of a vulture the way they operate in terms of like it's an amazing business model.

So think about it. For those, think about winners, I'm sure most people that are listening to that I've been to winners. So you might go to winners and you'll see like these pair of shoes and you know what? There's like size six, seven and 13. That's all they have. But what they end up doing is they're essentially opportunistic when large retailers or large clothing companies have too much inventory and they need to get rid of it. they'll go to TJ Max or TJX and say, you know what, we need to offload this. And they are a very large buyer.

So if a company really needs to get rid of a lot of inventory, think about Nike, for example, they haven't been doing it as well. Well, TJX can just swoop in and say, well, take whatever. We don't care if you have weird sizes available, even like sometimes weird colors. We'll take it. We won't give you a whole lot for it. But we will take it. And if you're one of those large retailers that need to offload stuff,

if you can just offload it to one buyer, it's extremely compelling. So essentially their bet is like, okay, sure, we might not have the most up-to-date fashion things available and we might not have all the sizes, but our consumer is willing to go treasure hunting and get a bargain. And they're willing to overlook a little bit of the most up-to-date stuff, maybe for a good deal. And it's been working extremely well. And honestly, like the business model is just, the more I was thinking about it, the more I think it's phenomenal because they should be doing well even in a tough economic environment

because if you have fashion clothing companies or retailers that are like having trouble selling stuff and now it's piling up and fashion is changing quickly, well, they can just swoop in, get an amazing deal and then sell it at a discount for a consumer that's, looking for a bargain. Yeah, most people, when you understand that most people do not care about being a year or two behind on fashion or like not owning the top end items, whatever it may be, this business model works wonderfully. Yeah, I think, again, this is more the business model. I haven't looked at like the dividend, the payout ratio, all that stuff. Their debt levels seems pretty sustainable. It's a large company, $144 billion in market cap. But on the surface, again, I have

to do a deeper dive, but just the logic behind the business model, it's hard not to like it. So this one, I don't know, I think I'm reluctant to put it in S tier just because I think I need to to dive into it a bit more and look at like the financial health and a bunch of different things as well. But I think I'd put in in the A tier along with Dolorama and Winmark. Does that, does that Does that make sense? Yeah. I think it's pretty hard to S tier it with some of the companies that will go into the S tier, but it's, yeah, it's genius model.

I think there's two, maybe three that will have a compelling case in terms of the ones that are left here. So let's go to Target here. All right. So Target is, I wouldn't call it a discount store. It's kind of sitting in the middle, I guess, with kind of some desires to become one. but the core strategy for Target has always been to get people in for essentials and then they make most of the money on discretionary items. So you go in and buy eggs and leave the store with a new lamp or whatever it may be. But it's people will probably remember the disastrous launch here.

I can't even remember when it was. But last two years. At least 10 years ago. Yeah. Yeah. Yeah. They had to close 130 stores, lost $7 billion, $18,000 jobs, absolute nightmare. But yeah, they've started cutting a bunch of prices on items, which is no doubt helped a bit because traffic increases are coming back after a couple of years of declines. But the only thing is, is it's starting to hit margins. Operating margins have been cut pretty much in half since 2022. And again, this company makes most of its money on discretionary items. So it doesn't have a lot of room to cut on consumer staples because the margins are pretty low to begin with. Like you'll see that with a company like Loblaw who operates very thin margins.

So if you're cutting prices, you're cutting it on the items you're making money on. So it's, it's, I personally think that the transition will be a bit of a failure. Like the company is not set up to do this successfully. Its operating costs are massive, primarily due to the structure of its stores.

So they're gigantic. They're in high rent suburban areas. And now you're fighting with companies like Walmart, dollar tree. We have a very large head start on you. And the one thing I do think that they could gain an edge in is the fact that they own a lot of their brands. So as you had mentioned earlier in the episode, like private label, the brands make up nearly 30% of their revenue. And they own like 45 of them.

So you can't really go say, oh, I'll go buy this at Walmart because it's cheaper because it only does exist at Target. But I don't know the brands well enough to see if to know if they have any sort of staying power or not. But the other interesting thing I did not know about Target. and it's probably an issue as well, but they use all their stores as distribution warehouses. So 98% of their sales are fulfilled by their actual stores. So that includes, like, e-commerce, whatever it may be. They do it right out of the stores.

So it does save them from having to build warehouses, but it just makes a footprint of their stores massive. In terms of retailers, I don't know. I would put target. You think C or D for me? Yeah. It would be D for me all day because I don't know. operating challenges, too, over the last few years.

So it's, yeah. And I say this in like a general sense of like discount retailers. I really, they're trying to adapt a little bit, but I don't think they are one. So that pushes it even lower as well. Okay. Let's move on to the behemite here on the list. We're getting into the heavyweights, yeah. The heavyweights, yeah.

So Walmart, I think, needs no introduction. I mean, comparable sales growth has been consistently above 4.5%. though the last quarter was definitely below that. So we'll have to see whether it goes, you know, how they can deal with that going forward. It's a company that had sales of 713 billion last year, even higher on the trailing 12 months basis. Return on invested capital 10.8%. Since 2015, gross margins have ranged between 25 and 26%. Operating margin between 3% and 5%.

And free cash flow margins around 2% for years. And you're really betting here on value of all. with Walmart with their sheer size. They have massive leverage when it comes to negotiating with suppliers. So that's the advantage that I would say will be hard to replicate because if Walmart tells you like we need you to offer better pricing or you're coming off the shelves, you're probably going to listen. Yeah.

Or say no and lose a big chunk of your business. So from the discount retailer perspective, they've grown their private labels brands quite a bit. They said earlier this year that they had to. had 21 private label brands with over a billion in annual sales and five with over five billion in annual sales. So I'm assuming the great value one is probably in the over $5 billion in terms of sales. And they've leveraged their massive store footprint, a little bit like Target to use them as fulfillment centers to be able to compete with

Amazon, which I think is great in their situation because their stores were already massive. And I think leveraging that and probably modernizing them to be able to become. for fullman centers. They've also grown an impressive online marketplace over the years. I've built the Walmart Plus membership similar to Amazon Prime. They also have the Costco competitor as well, which I'm... Sam's Club.

Sam's Club. There you go. I was like, oh, my God, it's not... I think there's BJs, but that's a standalone company, not them. In terms of levers, it can't pull. It's hard, you know, you're really hard pressed to find a company better. position just because of the sheer amount of leverage that they have. They also have so much data in real time. I mean, they've set on their calls before I said it a few times. They can tell when the

price of gas is over $4 a gallon because people are reducing their spending or they're changing their spending have it. So really, I mean, for me, this is probably the S-year one. Like, it's just, I don't know. It's been at the top retailer, discount retailer for decades. I don't. I don't. I don't. I don't see, even in the face of Amazon competition, they've become resilient to that as well. So this is one where as a pure business standpoint, for me it would be an S-tier, but you tell me whether you agree or not. I would probably be pretty close to S-tier. Yeah, I would not object to anybody S-tiering it.

I would put Costco in the S-tier, but it's also a different element because Costco is not really seen as a, I guess they are a discount retailer, but that's only. discount if you buy in volume. Yeah, yeah, exactly. So like, if you're truly going to save on groceries, like, well, and not have to buy a ton of them. Yeah, Walmart would be in the ass. Yeah, and just the amount of levers they can, they can hold to.

I think there's no business that has as many. So that's, that's why. Yeah. Yeah. And a lot of them, like some of them taking because they do, they used to do the oil changes and stuff like that. And that's what they've shut down and turned into those distribution areas where they can do like e-commerce, all that type of stuff. So yeah, yeah, I'd put it in the ass. Okay, let's move on to your

next one here trying to be quick because we only have about 15 minutes. So speaking of Costco, that's our next one here. Yeah, so Costco will be a short one because it's a lot of people already know what this company does. But best business flywheel, I guess, I would say on the planet at least. So they have 4% operating margins with 21.5% returns on capital. So it makes pretty much nothing selling the actual goods that it sells and it makes all its money by selling membership. So if you think about that for a second, you'll understand the flywheel. So it makes nothing on the stuff that actually gets people into the stores, which leads to lower prices, which then leads to more people wanting to buy the thing they do make money on. And that would be

the membership to the store. So renewals are north of 90%. So generally, once they get you there, They're kind of getting you there for life. They have arguably one of the, it's one of the, the fastest growing retailers in the country. So we're talking double digit, top and bottom line growth. Consumer spending crunch has definitely caused a gigantic flood of customers to Costco. So most of these retailers, we've seen like comparable sales in mid single digits, load of mid single. Like Costco's still 7.2% in Canada.

They're even mid single digits across international and the U.S. The difficulty for this one has always been valuation, but I won't really talk about that a ton because we haven't really done that for the other ones. But if you just think about it, it's a never-ending cycle of they get more people into the stores, which means they get more people buying things, which means they can go back to suppliers and just like Walmart negotiate lower prices, which they then flip an offer to people, which gets more people in. It's just, it's a revolving cycle for this company that just just never seems to end. end. And that's why for this one, in terms of business, I would put it in the S tier because... Yeah, I'd agree with that. Yeah. I don't really know what this company would have to do to kind of blow up the model that they do have because it's just, in my opinion, it's bulletproof. Yeah. And I see them at this discount retailer.

Sure, you have to, like, you need a membership. You just got to buy a bunch. Yeah, yeah. But if you, you know, if you spend enough there, I mean, you're saving so much money even compared to some of the, if you're looking at food compared to some of the discount grocery store, it's still cheaper to buy a lot of stuff at Costco. So I think the difference though with dollar stores, for example, or even those discount food stores, is that a lot of the times Costco, you'll need a car to go there. So yes, you need to have maybe a higher income base income, but to me, I still see them as a discount retailer. They provide a whole lot of value. So yeah, that's good there. So we did. So finishing up with the two Canadian retail, Canadian grocers. So I'll be doing a Metro here. Let me pull that up. There you go. So you have Metro. So Metro has about, like I mentioned earlier, 20% of its stores in the discount banners with food basics and suparse like Loblaws. They have a strong offering of private labels items under, I think it's their complement brand. On their most recent call, they said that consumers are focused on value and that has supported strong private label sales.

And I think this is something you'll see more and more is these retailers, but especially grocers, it's very important to have private labels because those offer very good value and it allows them to keep like a decent margin while offering some good value to consumers. A concern for them is that food same store sales growth has been lagging inflation and was negative in their most recent quarter, although they said this was impacted by labor disruption at one of their food distribution centers outside of Montreal. Now, for a few years, they have had a new in-house reward program, which they believe is also offering some good value to consumers.

It's called the Moa program, MOI. They have a return on invested capital of 8.5%. It is lower than Loblaws. In terms of margins, they have gross margins around 20%, operating margins around 6, and free cash flow margins around 5%. So believe it or not, they only have 10% less stores than less grocery stores than La Blas. I did not know that. Yeah.

I thought they were much smaller. Yeah, but where it is tricky is Lobla's stores are much larger. So in terms of actual footprint in square footage, there are stores, they basically have a 3x square footage advantage over Metro. But the actual number of stores, so they tend to be much smaller. than some of the Loblaws brands that you have. So for this one, I mean, I think I'd probably put it around like, probably a B or C, I would say.

Maybe like, yeah, B because I'd put, if we had it on the list, is it imperial, not imperial? What's the other one in Canada? Empire, there you go. Empire, I'd have it lower on the list. They only have about 10% of stores that are discount stores.

So I think that gives an advantage right there to Metro. So I think the B tier is respectable for Metro, yeah. Yeah, and I think if you went any higher, like if you put it in the A, you'd technically have to, you'd probably have to put Loblaw in the S. Yeah. And, yeah. Spoiler alert. Yeah.

I think Metro, yeah. Let's get into Loblo. Let's get into Loblo. Because I refer to them quite a bit in here. So let's do Loblob before we wrap this up. Yeah, I'm not sure you would have found a company that was better position. a Canadian company because Costco was very well positioned for this as well, but just kind of the trade down for Canadian consumers because La Blah owns both ends of the

spectrum, so they own the high-end stores like Lobla and they own the discount stores like Maxi and No Frills. This was a gap that was very, very obvious with Metro and Empire during the periods of big inflation and is why Loblaws has absolutely crushed it over the last while. they had the discount stores before Metro and Empire and now Metro and Empire kind of building into that now, but they're playing catch up with pretty much the, while the largest grocer in the country, which is quite difficult. It has the largest discount presence in the country at a time when people are trying to save more.

So groceries, first thing you do to trim down. I used to shop at Sobe's, which is Empire. I don't think I've been in there for three years now. It's just no frills and Costco. So I've traded down in that regard. The other main benefit here is their discount stores like no frills are franchised. That's what you see like whatever may be like Tracy's no frills or whatever it is on the on the front of them. So lower operating costs, lower capital intensity.

That's why you see it posting more than than triple the operating margins as Empire. And I think they're a full percentage or a percentage and a half higher than Metro. It's also the only, as you had mentioned, the only Canadian grocer to have double digit returns on invested capital. It's not that metros are poor. It's just Loblaws are better. I won't talk too much on the farmicide, but it's that area is crushing it too, actually more than grocery.

And if I'm putting Costco in the S and Metro in the B, you kind of got to put Loblaw in the A in terms of business quality. Yeah. It doesn't really have, I don't really think. Loblaw does have, at least on the Canadian side of things, the flexibility with suppliers as well. We've seen that with that one coffee brand where they wanted to do. race prices and Lobla said if you do, we're taking you off the shelf. So they kind of have that

Walmart style, like you better offer us the lowest prices or we'll just throw some other product up there. I think it was Folgers, right? I think it was folder. Yes. Folgers. Yeah. It was. Yeah. And they're off they're no longer available there. Yeah. So like they have that flexibility too. So that puts them up there. But Costco better flywheel, I guess you could say in terms of just getting people into the stores. But yeah, definitely in the A. Yeah, and when I talked about close to 50%, I didn't even include Superstore in there that is like, you know, it's not as discounted.

It's like in between, I would say, because we have one not too far from our place. And we also have the Loblaws not too far from our place. And I can see a difference where Superstore is definitely, most of the time, it's cheaper than the Loblaws banner. So I can definitely see that. But I know every time we talk about Loblaws, as people, it's a very not love company. Yeah. So I'm sure we'll get some flag, but we're just

talking from a pure investment perspective in terms of business quality and how the business is actually run, whether you agree or not, then, you know, maybe sometimes they're not the most ethical, and it's hard to disagree with you on that. I don't disagree, but in terms of pure business, I think this is a, it's a good overview for those watching on YouTube. Make sure, let us know in the comments, whether you agree with us or not. with our tier ranking. This was a fun one to do. I'm sure we'll get a lot of comments.

I don't think there has been something like this done in YouTube. I know you've done some on stock trades YouTube that were more kind of Canadian focus, but discount retailer. And I think with the cost of living increasing, I just think this was a bit of a no-brainer to do with the current environment right now. Yeah. People love lists like these. I do these all the time and they're so popular.

because it's just like it's not an in-depth dive on every single company, but it's just kind of a quick overview. Yeah. It's like just a visible chart you can look at. Obviously, you've got to do a bit more digging if you're ever going to buy any of these. Oh, for sure. It's a good starter point for sure. And make sure you look at the valuation. Of course, the debt, the dividend, the payout ratio, if they have a dividend, these are all things like interest costs.

If they have a lot of debt, when's the debt coming up? Just like for those have been investing for a while, that's something they would already look at. but we just did a quick overview. Hopefully you enjoyed it. Let us know if you like this kind of list show because we're happy to do it again. And if so, what kind of list that you'd like us to do next and we'll work on it? It's always fun to do. But appreciate the feedback.

If you have in, please make sure you subscribe and leave us a comment. It always helps us to, you know, other people find us. But yeah, that's it. Not much to add. We will be back with our regular news and earnings on Thursday. and make sure you don't miss the live show with Dan Foch that happens on Thursday at noon every week and the audio format is on Saturday.

So see you soon. The Canadian Investor Podcast should not be construed as investment or financial advice. The host and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.