A big crowd gathers outside the Reject Shop for the official opening on Thursday.
A big crowd gathers outside the Reject Shop for the official opening on Thursday.

Reject Shop’s biggest mistake

SHOPPERS have continued to snub the Reject Shop, which is battling to stay relevant in a tough retail market.

The discount chain's net profit dropped 28 per cent to $12.3 million in the year to July 2, it announced on Wednesday.

And managing director Ross Sudano has singled out one mistake as the key to the disappointing results: product placement.

While the Reject Shop had the right mix of branded goods, Mr Sudano told investors, shoppers struggled to find them as they were not placed prominently enough in stores.

Instead of being displayed in prime positions, these items - key to the company's merchandise strategy - were hidden away inside, a missed opportunity to draw customers inside.

"We stumbled on our merchandise execution, not our strategy, just our execution," he said.

"It didn't resonate with the customers, so we took action in the second half. We didn't change our product mix. We changed how we used our expandable space."

Mr Sudano said the company performance was also impacted by "the combined effects of weak consumer confidence".

He said the group had over invested in new products at the expense of everyday value and branded bargains.

"The impact was a perceived loss in value by some of our customers and reduced foot traffic," Mr Sudano said.

"This occurred at a time when the availability of discretionary income is challenged, and consumer confidence amongst our core customers continued to deteriorate."

He said The Reject Shop's turnaround plan was focused on a return to basics, with a focus on everyday items at good prices, and branded bargains.

The dismal results announcement comes four months after the company issued a market update that wiped $93 million from its value after investors sold down shares from $8 to $4.16.

Analysts have said the Reject Shop suffers a "lack of relevance", saying the chain had "lost their direction and value proposition" and was no longer a "destination" for shoppers.

"It doesn't seem to fit in a category where people would say 'it's got to be on my shopping list'," Barry Urquhart said.

The April profit downgrade was blamed on "extremely challenging" retail conditions and a problematic merchandising mix, with Mr Sudano then warning the company's full-year profit would likely be cut to $12.5 million.

While the share price had recovered slightly, investors have again savaged the company, wiping 10 per cent from its value on Wednesday before closing at $4.14.

But Mr Sudano said he was confident of rebuilding profitability by continuing to focus on improving merchandise quality with key everyday lines and branded bargains.

"We are confident that our continuing initiatives to improve sales, along with the positive effects expected from the promotional activities planned from September, will see the company return to positive comparable sales growth during the half, albeit at a low level," he said.

"The company expects to report a net profit after tax in the range of $16 million to $17 million in the first half of the 2018 financial year."

The Reject Shop's sales for financial year 2017 were $794 million, an increase of 1.2 per cent year on year.

Tough trading conditions experienced in the second half of 2016/17 have continued into the current financial year, with comparable sales in the first seven weeks of 2017/18 down three per cent on the same period a year ago.


• Full year net profit down 27.8pct to $12.3m

• Total sales revenue down 0.7pct to $794m

• No final dividend, down from 19 cents

- With AAP.

News Corp Australia

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