The Reject Shop has gone from humble discounter to retail heavyweight in a matter of months – and experts say certain strategies have played a key role in its transformation.
On Tuesday afternoon, its shares were worth close to $8.50 after yesterday closing up 13.9 per cent at $8.12 compared to just $2 this time last year.
The 40-year-old retailer now has 354 stores across the country, 5300 team members and $900 million in annual sales.
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But according to investment banking heavyweight Morgan Stanley, it could be just the tip of the iceberg, with the firm predicting it could become a $3 billion stock within the next decade.
It upgraded the company’s stock rating to overweight “in view of a large addressable market, change in strategic direction, and large prize on offer for success”.
“The range of possible outcomes is wide; others have tried and failed, and the stock’s recent performance has been exceptional – yet we still find risk-reward compelling,” Morgan Stanley said in a new analysis.
“We see a new but experienced management team and a simplified strategy as a potential catalyst to turn a market-leading position and $900 million per annum of sales into elevated compound earnings growth off a very low base.”
Morgan Stanley described The Reject Shop as a “leader in a fragmented market” and said this “retail niche” has proven to be “large and very profitable in other markets” across the globe.
While it noted the dollar store had been “under-earning”, it predicted a “new but experienced management team and a simplified strategy” could be the catalyst to turn it into a market-leading position.
The Reject Shop’s new team, with Andre Reich at the helm, is focused on boosting the range’s consistency, cutting costs and reducing rents.
Morgan Stanley claimed the chain’s success came down to a range of factors including convenience, price, value and profitability.
The discounter’s performance is all the more impressive under the current climate, with a slew of big Aussie names going under in 2020.
It started early on January 7 when it was revealed department store Harris Scarfe was set to shut 21 stores across five states over the course of just one month after the retailer was placed in receivership in December.
Just days later, McWilliam’s Wines – the country’s sixth-largest wine company that has been run by the same family for more than 140 years – announced it had also appointed voluntary administrators.
Then it was popular video game chain EB Games’ turn, with the business confirming it was closing at least 19 stores across the country within weeks, while fashion chain Bardot was also planning to shutter 58 stores across the nation by March.
In January it also emerged Curious Planet – the educational retailer previously known as Australian Geographic, which is owned by parent company Co-op Bookshop – would pull 63 stores across Australia after failing to find a buyer for the brand, while denim chain Jeanswest entered voluntary administration that month and tech giant Bose also revealed it would close all Australian stores and 119 across the globe largely as a result of the rise of online shopping.
This year German supermarket Kaufland also pulled out of Australia before it had even begun, investing millions into the expansion before making a hasty exit this year to focus on its European offerings.
Handbags and accessories chain Colette by Colette Hayman was also placed into voluntary administration in late January, leaving 300 jobs and 140 stores in the lurch, while furniture, homewares and handicrafts store Ishka also collapsed in February and stationery chain Kikki.k entered administration in March.
Originally published as Reject Shop’s $3 billion secret weapon