Money & Banking

Fri, 19 Oct, 2018Danielle McCarthy

Could this be the end of The Reject Shop?

Could this be the end of The Reject Shop?

With Australia being one of the most expensive countries in the world, it's no surprise that shoppers are constantly on the hunt for a bargain.

However, despite our love for a good discount, one of the country’s most popular discount store chains, The Reject Shop, is struggling to survive.

Yesterday, the company was forced to slash its profit forecast, triggering a staggering 44 per cent slump in its price.

The Reject Shop slashed its profit forecast from $17.7 million to between $10 million and $11 million for the first half of the year.

Speaking to news.com.au, Queensland University of Technology associate professor Gary Mortimer said there were a number of key factors making it extremely difficult for The Reject Shop to thrive.

Mr Mortimer believes the greatest challenge for the business has been the rise of the discount department store, which allowed many other retailers to offer the same goods at the same prices.

“The appeal of The Reject Shop was that you could go in and buy a bag of lollies for $1 and a bottle of shampoo or conditioner for $2,” he said.

“But, now you can go to stores like Kmart (and similar stores such as Big W and Target) and pick up pretty much the same thing for the same price.”

Business trends expert Dr Lauren Roswarne from The University of Melbourne believes Kmart’s recent store renovations has also meant that shoppers can now find bargains “in an environment less ramshackle and a little more Zen than the Reject Shop offers”.

In recent years, discount stores have also had to deal with the ever-expanding German retailer, ALDI.

Mr Mortimer believes the bi-weekly ALDI Special Buy sales have made it difficult for The Reject Shop to keep up with an ever-changing range of merchandise.

“The growth of ALDI has also been a major challenge because they are very focused on low prices and they will constantly evolve their biweekly specials,” Mr Mortimer said.

Dr Rosewarne believes The Reject Shop needs to offer an experience to customers to encourage foot-traffic.

“The Reject Shop never had a ‘destination’ or ‘experience’ element to it for customers, nor an ability to truly offer visitors goods they couldn’t get elsewhere,” she said.

“These two things need to be worked on by chain retailers wanting to survive in a challenging space. A store needs to be more than a place to by an emergency roll of wrapping paper or a close-to-expiry box of cereal in 2018.”

However, The Reject Shop’s managing director, Ross Sudan, believes the drop in sales is due to an “extremely challenging consumer environment”, rather than any decisions made by the company.

“The continuing absence of real wage growth and increases in the cost of many basic expenses (including mortgage rates) ensures that competition for the discretionary spend of consumers remains high,” he wrote in a market statement.

“In addition, we have seen increased investment in promotional pricing across many retailers, particularly in the fast-moving consumable goods (FMCG) space, resulting in additional investment in our FMCG pricing to ensure our value proposition is not damaged.”

Despite the dramatic reduction in profit forecast, Mr Mortimer believes the company still has its edge – selling items for a bargain price.

“The Reject Shop often based itself on procuring cancelled orders and oversupplied products and tapping into parallel-sourced products manufactured for the Indonesian or Filipino market, for example,” he said.

“It will source those products and supply them in store at a cheaper price than many other stores.”

Do you shop at The Reject Shop? Let us know in the comments below. 

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