Reject Shop Limited Surging on ASX Despite of Downturn in Retail Space

  • Jan 22, 2020 AEDT
  • Team Kalkine
Reject Shop Limited Surging on ASX Despite of Downturn in Retail Space

The retail sector in Australia is going down along with the country’s economy. The traditional retail players were already suffering from the growing online retailing space; the downturn in the Australian economy has just added fuel in the process. In addition, the growing cases of bankruptcies of retailers and store closures have further increased the tensions in the retail space. Nonetheless, the economic loss due to bushfires could be felt at a broader level, as the level of destruction caused by bushfires may have a raging effect on the spending choices of the households too.

Reject Shop Limited

In today’s challenging trading environment, we have found one retailer that has almost doubled the shareholders wealth in the last six month. The Reject Shop Limited (ASX: TRS), an Australian retailer, has witnessed an increase of 73% and 92% in the last three and six months, respectively. The company has a market cap of around ~$115.63 million with outstanding shares of ~28.91 million.

Last financial year was a very challenging period for the company due to extremely difficult general retail environment. Challenging market conditions were overlaid with directional shifts to some elements of the company’s merchandise strategy that took the focus away from core aspects of its value proposition. This entailed a deeper investment into home and apparel categories as well as the introduction of an increasing number of higher priced items. This shift in direction did not meet customer expectations and ultimately came at a cost.

However as FY2020 has progressed, the company is on track with comparable store sales having improved from -2.5% for the second half of the last financial year to now be in positive territory. The company’s best first quarter comparative sales performance since FY2016.

At the recently held Annual general meeting, the company stated that its focus for the rest of FY2020 will entail a continued strategy to have lower and simpler prices; increasing its investment into popular selling categories and expanding ranges that appeal to a younger demographic in order to not only expand its reach but also to appeal to more Australian family needs.

The customers have welcomed the company’s changes while the company’s strategy revisions have placed itself on a solid platform for recovery. In the first 15 weeks of FY2020, the company’s comparable sales were +0.3% while the company continues to witness the improvement in its transactions and an increase in the number of items customers are buying.

The company now plans to communicate more efficiently and effectively to broaden its customer reach so they understand how The Reject Shop can help them stretch their dollar further.

TRS stock is currently trading near to its 52 weeks high price of $3.950. At market close on 22 January 2020, TRS stock was trading at $3.950 with a market cap of around $115.63 million.

A Look at Other Retail Players

Interestingly, despite challenging conditions in the retail space, major retail giants like Woolsworths, Coles and Wesfarmers are currently closer to their 52 weeks high price and have witnessed significant improvement in their share price over last one year. Coles’ share price has increased by 28.50% in the last one year while Woolsworths and Wesfarmers’ share prices have increased by are up 33.81% and 38.64% in the same time span. Wesfarmers and Woolsworths are two blue-chip companies listed under the consumer discretionary sector on the Australian Securities Exchange present neck to neck competition in the supermarket landscape. Both are major supermarket players in Australia, actively competing through the delivery of innovative and wallet-friendly products and services to consumers.

UBS Asset Management recently released a report in which it spread light over the shifting retail opportunity and the role of e-commerce in the retail space.

The shifting retail opportunity

In earlier days, retail was all about physical place used for the exchange and bartering of goods, with trading points both initially determined (and constrained) by geography, accessibility and, over time, transport infrastructure.

The automotive revolution of the 20th century has supported the development of more specialized retailers by expanding the catchment area, with new retail goods– distribution formats, such as shopping centers and retail parks, emerging on the back of this revolution. These new distribution formats have challenged traditional retail locations and put pressure on secondary and tertiary high streets, while at the same time offering new investment opportunities. Despite all these changes, one constant has until now remained unaffected: a physical location where physical goods could be bartered or sold. This constant, however, has been transformed with the introduction of the internet and the digitalization of payment.

For the first time, the contractual exchange of a good and a payment unit are not dependent on a physical location. Today, it is up to the consumer to decide how they wish to trade: in person or virtually. A store becomes a potential location for distributing a good, but not the only option. As such, e-commerce is revolutionizing the physical distribution network, as retailers look to find a balance between different distribution channels. The rise of e-commerce has surely put pressure on the traditional retailers.

Role of E-commerce in Retail Space

E-commerce as a share of retail sales continues to make gains, but it is to be noted that brick-and-mortar sales have also increased, albeit unevenly across categories. E-commerce giants generally occupies large square footage of warehouse space instead of physical retail stock rooms. The transformation in consumer spending has taken the preference away from large-square-footage occupants and will drive the efforts to identify the next wave of retailers. As a measure to solve the complexity of the last mile, it is expected that trends, such as in-store pickup, intraday delivery and cashier-less stores, may lead to some e-commerce retailers — especially retailers looking to drive sign-ups for subscription programs — leasing traditional store space.

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There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.

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