The Reject Shop is pulling in customers looking for value

The discount retailer’s new boss says the company is reconnecting with customers as cost of living pressures bring shoppers back to its stores.

The Reject Shop is winning from Australian households hunting for bargains, with its sales growth accelerating since January as the retail brand becomes a magnet for price-conscious shoppers.

After years of struggling with a string of profit downgrades, a sliding share price and a revolving door of chief executives, recently-appointed CEO Clinton Cahn finally believes the discount retailer has rediscovered its purpose and focus as a store which can deliver to shoppers with highly competitive prices.

“I think we are gaining some credibility with the customer, that is what The Reject Shop used to be, it is what discount variety should be and we are slowly building towards that,” Mr Cahn told The Australian after on Thursday revealing improving sales growth through the second half.

Its new merchandise, better focus on key events around Christmas and Mother’s Day as well as holidays like Halloween and better quality goods in its general merchandise offer was reconnecting with the consumer after The Reject Shop had lost its way for a number of years, said Mr Cahn.

“For those everyday essentials and exciting products you can’t really get elsewhere, and at compelling prices, and that changes every few weeks, that are quite bright and colourful,” Mr Cahn said.

However, the rollercoaster ride for its share price doesn’t seem to be behind it just yet, with the trading update and profit forecast in particular denting investor enthusiasm to send The Reject Shop shares sliding more than 8 per cent.

The stock later closed down 19c, or 5.15 per cent, at $3.50.

The Reject Shop is planning to open 17 shops this year.

In a trading update issued to the ASX The Reject Shop said same-store sales for the second half to date, week 27 to 46 of the 2024 fiscal year, were up 3.3 per cent. In terms of total sales, growth was 4.1 per cent.

This is against same-store sales growth of 2.3 per cent for the first half of 2024, and total sales growth of 4.2 per cent, with its comparable sales showing a healthy bump since January. Sales growth for the first 46 weeks of 2024 were up 2.7 per cent.

The discount retailer expects full-year earnings for 2024 to be in the range of $4m and $5.5m, against earnings of $13.3m for 2023.

Amid the cost of living crisis, where many retailers face dwindling sales and a reluctance by shoppers to spend up on goods, The Reject Shop has managed to book rising same-store sales growth, driven by its everyday consumables range.

“In the consumables side — which is cleaning, pets, toiletries, food and confectionery — these everyday essentials is where we make sure we’ve got a compelling value offer, and we continue to see good growth in those areas,” said Mr Cahn.

“We are seeing positive ongoing sales momentum in that area of the business.”

He said The Reject Shop has made significant changes to its general merchandise offer, had brought down prices and ratcheted up the quality of its ranges.

“The customer is responding really well to that … the way we conceptualise that is this concept of bringing joy. Products that bring joy to the customer, whether it costs them $2 or $3 or maybe $6, and will be something they can use to decorate their home or garden or whatever.”

The Reject Shop, whose biggest shareholder is packaging millionaire Raphael Geminder, currently has just over 380 stores and plans to open 17 stores this year, close around 12, and is building a pipeline of 15 to 20 new stores the following year.

Mr Cahn, who was appointed the boss of The Reject Shop last year, said customers continued to respond positively to its new and improved merchandise offering, although a number of challenges were present such as inflation and shoplifting.

“Like many Australian retailers, The Reject Shop is currently facing a number of macro and inflationary pressures, including higher wages, domestic supply chain costs and shrinkage.

“As we prepare for fiscal 2025, my team and I are very focused on improving gross profit margin and managing the cost of doing business.

“The company’s strong balance sheet positions us well in the uncertain macroeconomic and consumer environment.”

Mr Cahn said the next challenge was for The Reject Shop to improve its profit margins, as he conceded higher sales in the past for the retailer hadn’t translated into higher profits.

“Our big focus over the next 12 months now is to keep that momentum going but also start to edge the margin up, because in hindsight I think we didn’t make enough profit on our sales in the first half of the year which is our biggest half.

“And so the business is super focused on being more profitable.”

Originally published as The Reject Shop is pulling in customers looking for value