Reject Shop says pandemic is disrupting shipping and supply, which may lead to limited stock

Discount retailer The Reject Shop has warned that disruptions to global supply chains caused by the pandemic would likely continue through to June.

Disruptions to global supply chains caused by the pandemic could threaten stock availability and raise prices, warned The Reject Shop boss Andre Reich at the company’s AGM on Wednesday. Picture: AAP

Discount retailer The Reject Shop has warned that disruptions to global supply chains caused by the pandemic would likely continue through to June, impacting stock availability in its stores and adding costs to the business.

Chief executive Andre Reich said after the retailer’s annual meeting on Wednesday that supply chain constraints had worsened since last year and that product shortages were being caused by a number of factors including access to shipping containers, Covid-19 exposures at ports and many of his own suppliers facing delays on raw materials.

Mr Reich said shortages were “across the board”, impacting access to food products as well as packaged goods, homewares and other items typically sold at The Reject Shop.

“It is across the board and we are even seeing shortages from local suppliers who are waiting for raw materials.

“It has progressively gotten worse over the last 12 months. The first challenge was getting container space on ships, then there is also a local challenge in pallet availability, most retailers are sitting on more inventory to buffer delays coming out of China, which means that there is more stock sitting on pallets, also more retailers who have been closed which is also consuming pallets.”

Mr Reich said Australia had experienced substantial disruption to the importing of goods through the Asia shipping lane, and it is likely this disruption would continue.

“The disruption continues to be due to several macro factors that are impacting shipping capacity with demand being greater than supply. These international delays have been further exacerbated by delays at Australian ports and we are managing this closely,” Mr Reich later said in a speech at the AGM.

“We expect some impact to stock availability and increased costs through higher shipping charges. As a result of the international shipping challenges during 2021, The Reject Shop incurred approximately $9m (or 115 basis points of gross margin) in higher than anticipated and unbudgeted international supply chain costs.”

He said there were particular constraints in shipping goods from New Zealand.

“To date, The Reject Shop continues to manage delays and disruption to its international supply chain. Pleasingly, our initial Christmas stock has arrived and is now set up in-store.”

The Reject Shop is the latest retailer to concede that delays at ports, steeper shipping and freight costs and constraints across the supply chain had interrupted its business and thrown extra costs to its budget with many businesses witnessing delays in stock arriving and when it does land the price is significantly higher.

During the latest reporting season many retailers have disclosed that disrupted supply chains had impacted their business operations, with further evidence of the issue expected to become clear as ASX-listed companies hold their annual meetings this month and update the market.

“We continue to improve our selection of known national brands from leading local and overseas manufacturers, supported by private brands offering even greater value,” Mr Reich said.

“Prices on certain products are being managed carefully where the cost of goods has been impacted by higher raw material costs or higher international shipping costs.

“Notwithstanding this price inflation across the merchandise range, we continue to focus on providing customers with the lowest price in the market through buying at scale.”

Mr Reich said The Reject Shop was looking to open a further 20 stores by the end of June.

“To date, we have opened six stores and closed three stores in the first four months of this financial year. In addition, the company expects to close at least a further two unprofitable or underperforming stores during fiscal 2022.”

Mr Reich said the operating environment remained uncertain and the company was focused on achieving EBIT growth during fiscal 2022 through generating comparable store sales growth in the existing store network, opening new stores in neighbourhood and strip locations (both metro and country) and continuing to optimise costs across the business.

The Reject Shop posted an annual net profit of $8.3m in August, up from $1.1m last year, despite a 5.1 per cent fall in sales to $778.7m – the top end of the group’s sales guidance in June. Comparable sales were also down 5 per cent.