The Reject Shop has mishandled its merchandise offer which has hit sales
The budget retailer, which has lost two CEOs in less than a year, has admitted a poor merchandise offer in the second half hit sales as consumers cut back on spending.
The Reject Shop has conceded it mishandled its merchandise strategy and seasonal offer over the December half, its key selling period, resulting in disappointing sales with the pullback in discretionary spending by consumers also rattling its performance.
The nation’s largest discount variety retailer said it had detected consumers reining in their spending on discretionary goods as they seek value for money, with cost pressures in the business such as shipping, supply chains and higher labour costs shaving away profit margins for the group.
However, shipping costs were now down as much as 80 per cent from their peak, the benefit of this saving should start to impact The Reject Shop’s profitability in the fourth quarter and more materially in fiscal 2024.
The Reject Shop, whose largest shareholder is packaging businessman Raphael Geminder, did not declare a dividend for the first half but held out hope that it could reinstate dividends at the end of the financial year which could include a special dividend to investors.
On Thursday The Reject Shop, which operates 376 stores across Australia, posted a 3.5 per cent lift in interim sales to $439.7m as net profit rose 6.2 per cent to $16.3m. Same store sales for the December half were up 2.4 per cent.
In February, The Reject Shop chief executive Phil Bishop suddenly resigned after only seven months in the role, with the company citing “personal reasons” for his shock departure. Mr Bishop was the second CEO in less than 12 months for the chain.
The discount retailer said during the half, customers gravitated towards low-priced consumables that represented great value.
“We saw strong sales performance across a number of consumables categories where we offer our customers compelling value on branded products,” the company said.
However, general merchandise sales were softer. It blamed prolonged lockdowns in Victoria and New South Wales in the previous corresponding period that had a favourable impact on general merchandise sales at that time, and cost of living pressures increasing to see customers favour non-discretionary low-priced consumables ahead of more discretionary products.
The Reject Shop also conceded its general merchandise and seasonal offer was “not optimal” in terms of newness, variety and value.
It said a new merchandise strategy had been implemented.
“This new merchandise strategy is expected to result in an improved product offer, which is more closely aligned to our traditional core customer. We are pleased that new product has started to hit our shelves over the past few weeks and the customer response has been positive.”
Comparable store sales growth during the first seven weeks of the second half were up 9.4 per cent.
Its shares closed up 6.3 per cent at $4.20, giving the group a market capitalisation of $161.4m.
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