‘Money from heaven’: The Reject Shop set for $259m sale to Canadian giant

Discount retail shop The Reject Shop has agreed to a $259 million takeover by Canadian value retailer Dollarama, which plans to almost double the number of stores in Australia over the next decade.

Dollarama, which is based in Montreal and listed on the Toronto Stock Exchange, has offered to pay Reject Shop shareholders $6.68 in cash per share, more than twice the stock’s $3.15 closing price on Wednesday, the discounter said in a statement to the ASX on Thursday.

The Retail Shop’s shares soared 110 per cent to close at $6.60.

The Reject Shop could soon be Canadian-owned.

Clinton Cahn, the boss of The Reject Company, called the Canadian offer a vote of confidence in local retailers.

“For Australian customers, there’s going to be more Reject Shops across the country. They’ll be more accessible,” Cahn said. “It’s a really exciting for Australian retail, and at a time when Australian retail is really tough.”

“[The discounter] is a business that we think has so much opportunity” to grow, he said. “Our approach has been somewhat incremental. It’s been step by step because we have constraints the way that we’re currently set up. Dollarama will be less constrained.”

The Canadian dollar store giant said it plans to expand The Reject Shop’s footprint over the next ten years from about 390 locations to almost 700 stores by 2034.

The Reject Shop’s chief executive Clinton Cahn. The chain is being acquired by Canada’s Dollarama in a $259 million deal.Credit: Elke Meitzel

While Cahn said that Dollarama intended on working with local management, it was still unclear whether stores would continue trading under The Reject Shop name.

Brian Walker, founder of retail consultancy firm Retail Doctor Group, said the sale was a great deal for the Aussie discounter.

“In my initial read of it, it’s money from heaven... This was a business model that was always going to be challenged coming forward. It could only ever sell to a player with global reach and global muscle in sourcing,” he said.

Walker said brick and mortar low-cost retailers were being consistently challenged by cheap global online stores like Shein and Temu, which are muscling in on the Australian market. Local success stories such as Wesfarmers’ department store giant Kmart, which has seen strong results in recent years, were “the exception rather than the rule”, he said.

“[Online stores] don’t have shops. Overheads are only going to rise on [physical] shops, particularly in the metro areas, rent being a big one, wages being another”.

“When The Reject Shop started [in 1981], we were all happily using our physical presence to buy commodity product like this,” Walker added. Now, consumers were using “those types of Amazonian models… and we are visiting retail shops a little less.”

While Cahn acknowledged that online retail has experienced rapid growth across the last decade, he said that The Reject Shop’s strength has always been its physical stores.

“We’re in remote country towns, where we’re the general store in town,” Cahn said. “We’re often placed next to supermarkets where there’s significant foot traffic. We’re in large shopping centres.”

The takeover, if approved by shareholders, is expected to be completed in the second half of this year. The board has advised shareholders to support the deal at a special shareholder meeting in June.

The Australian chain’s largest shareholder, Kin Group, which owns about 20.8 per cent of the discount retailer, has already signalled it would sell its shares to the Canadian suitor if an independent expert concludes the deal is in the best interest of shareholders.

Dollarama, which owns more than 1600 shops in Canada selling items for up to $C5 ($5.56) apiece and also controls a chain of 588 discount stores in Colombia, Guatemala, El Salvador and Peru, said it was the “right opportunity to expand into new geographies”, according to its CEO Neil Rossy.

“We look forward to embarking on this new chapter of Dollarama’s international growth journey with the local management team and its more than 5,000 employees across Australia,” Rossy said. “We are confident that the business will have an exciting future.”

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