Decline in Profit of The Reject’s Shop : The Need to Transform
The decline in profit shows the Reject Shop is losing out to its competitors. What has set its downturn? The public retailers’ annual profit expectations was cut to $2 million and closed seven stores this year. It shows a $16.9 million bottom-line loss aggravated by breaking two bank covenants and chairman Bill Stevens stepped down in October.
Financial analysts attributed its decline in profit to a failure to execute its merchandising strategy in 2017, as well as competition from other brick-and-mortar stores that aim to deliver similarly low-cost products with a higher-end aesthetic floor plan.
If a brand wants to drive more sales, the logical plan would be to remove clutter from a store floor space, but The Reject Shop relies on some clutter to encourage “purchases on a whim”.
The Muji Experience
Take Muji, for example, this concept came about in an age when the Japanese economy had progressed and people were enjoying material wealth. So, in the original concept, there was a very strong element of having one’s day-to-day needs already met.
A large part of the problem for the Reject Shop, then is that Australian shoppers are now over-saturated with material wealth – and are looking to de-clutter re-organised clutter to look more aesthetically pleasing. At the same time, the Muji concept accurately captures the direction in which today’s society is moving – which is largely based on aesthetics over quality – and are taking their share of the pie of the ‘discount store’ market.
The Reject Shop, on the other hand, is not really capturing change and giving us the same, old tired experience. Something is missing, making shoppers go to similar stores but with better and more pleasing aesthetics. Muji is the evolution of The Reject Shop.
In this article, we’ll discuss the business model of the Reject shop is failing and what can be done to improve if not transform it to the digital realm. We will learn why it is important for brick and mortar stores to transition to the digital realm to stay in business.
The Reject Shop Competition Affecting its Decline in Profit
The Reject Shop is more like a cluttered room where all the goods are scattered so the customers can pick up an item on a whim or find the product they want more easily. And because the items are affordable, it is an everyday low pricing example.
The Reject Shop never had a ‘destination’ or ‘experience’ element to it for customers, nor an ability to truly offer consumers goods they couldn’t get elsewhere. Their initial value proposition was its wide product range (1000’s of SKU / product) with 80% under the $10 mark.
In the last 10 years, new independent owners from China set up dollar stores all across Australia, making a price and non-price competition economics. The Reject Shop found itself competing against 1000’s of Chinese run dollar stores. Many of whom not paying full tax and taking cash without giving any receipts.
It couldn’t do this as they are a legitimate business – so they had to increase their prices. Customers, in turn, began to compare them with smaller dollar stores, and pretty soon decided to go for the cheaper option – especially as many of the products were not of the highest quality anyway…
US and Canada Thrift Shop business model
In light of the change in their market, many low-cost stores, like the Reject Shop, are looking to America. In particular, the US and Canada thrift shops. Thrift shops provide savings for the buyer as the goods are an everyday low pricing example. Bargain hunters enjoy finding the best buy as they would in a regular store or mall.
The US Dollar Tree and Canada’s Dollarama prove that the thrift shops can thrive under the right conditions. Closer inspections on their business models show the importance of clear price leadership and unique customer proposition.
For instance, Dollarama has a much lower lease and wage cost base compared to that of The Reject Shop. It sources its products directly, cutting out the middle agent and providing control over product design. Its value merchandise seems to agree with the customer base.
It doesn’t need to market their products as their customers proudly show off the items they purchased via Youtube, cutting the cost of advertisement.
Dollar General focused on rural towns with populations too small for Walmart or any other large retail stores to invest by providing discount consumables. Dollar Tree sells everything at a fixed $1 price point which has proven to be a very tempting offering, even for middle to higher-income consumers in urban and suburban areas.
However, even if the Reject Shop is basically a haven for bargain hunters, it cannot compete with online retailers like Amazon and Alibaba. They cannot seem to make a transition to the digital world.
The Reject Shop has been unable to implement changes successfully despite numerous adjustments in strategy and leadership changes. Different store layouts, price points and merchandising mixes tested and failed. Thus, this resulted in a decline in profit.
Not entirely cheap is part of its decline in profit
The real problem here is not all its products are entirely cheap. Prices can’t keep being cheap if the price of rent is always climbing, plus the fact wages go up and logistics go up too.
Another is that shoppers don’t see the price difference to be that big. They now think of low prices based on competitive pricing from the likes of Aldi, K-Mart, Target and even Coles and Woolworths. The competition-based pricing method applied here.
Using the advantages and disadvantages of competitive pricing strategy here can either save The Reject shop or could further drive them to bankruptcy.
Parallel importing of branded fast-moving consumer goods could be the last avenue of the Reject Shop’s competitive advantage. Instead of purchasing the merchandise directly from the manufacturers, they rely on a foreign third party to purchase for them.
The need to transform to halt its decline in profit
The company can transform its business identity into the digital realm. It can retain a discount variety retail concept with proper planning. Or as other traditional businesses that completely change its core to something different but profitable venture as well.
It may need to close some of its stores and consider filling the gaps in regional and rural town centres. That could be deserted by Big W and Target in the coming years. Just like what the US Dollar General did.
Other challenges facing the Reject Shop are the threat of online competition; as well as the increasingly blurred distinction between it and the discount department stores. Other stores are selling the similar brand as the Reject shop and probably at a lower price.
Another is most of the shoppers have made the transition to online buying to get items they needed. The Reject Shop so far has not made the digital transformation yet. Most businesses nowadays have moved to the digital world to service their customers.
- The Dollar Store Business model needs to shake things up. The Reject Shop needs to entice customers by truly offering customers goods they couldn’t get elsewhere. The pricing team should find other ways to price competitively with the other dollar stores. That is if they have a pricing team at all. By the looks of their pricing, they don’t.
- They have to be creative to make the physical stores more aesthetic and soothing to the eyes of the customers. And remove the clutter around it.
- The arrangement of the items have not gone well with the customers. Deciding to place brand-name goods inside stores and not in prominent positions not well-received.
- The Reject Store can fill the gap in rural communities abandoned by Target or the Big W. The rent spaces in the urban centres are eating away their profits.
- The Reject Shop is losing relevance to its customers as other stores like Aldi move in on their turf. They may want to consider purchasing directly from the manufacturers instead of a third-parties.
- The need to go digital is never more urgent as it is now. Online retailers like Alibaba and Amazon are dominating the digital and physical stores as well.
- The layout and merchandising shouldn’t be based on an internal view of value – i.e., inward-looking and business-centric. It should reflect what the customers want and how they perceive value and want to enjoy the store experience.
- The Reject Shop is feeling the effects of digitisation; it’s time to pursue other ventures to minimize margin pressure, including an online retail pricing strategy.
Or, feel free to call me on (2) 91994523
Alternatively, subscribe to Taylor Wells pricing channel now and get an update as soon as a new video is released.