Reject Shop warns of price rises as profits slip and supply chain costs increase

In an effort to avoid supply chain issues, discount retailer The Reject Shop has upped the ante on its in-store stock with costs ballooning to $9 million higher than previous years.

CEO Andre Reich told the Australian Financial Review (AFR) the decision to bump up stock in store was deliberate, as international shipping and supply chain issues continue to impact the retailer.

“As is being seen across the market, the cost of goods continues to increase and is expected to continue increasing due to high raw materials costs and elevated international shipping costs,” Reich said.

The Reject Shop currently operates 367 stores around Australia, but Reich has a warning for shopping centre landlords as the brand prepares to renew some 75 leases in the coming months: Reich told the AFR he would prepare to walk away from unprofitable stores if acceptable rent reductions could not be negotiated.

Rising costs cause dip into Reject Store profits

With almost 60 per cent of its stock coming from overseas suppliers, The Reject Shop has faced rising costs and supply chain disruptions throughout the pandemic.

In an ASX announcement, today, the retailer said that sales for the half were estimated at $424.7 million, down by 2.2 per cent compared to the previous year. While net profit after tax slipped 9.9 per cent to $15.4 million.

Reich attributed the result to extended lockdowns and restrictions in Sydney and Melbourne, and the emergence of Omicron in the lead up to the holiday sales season.

“We endured lockdowns in almost every state, temporarily closed certain stores due to team member absenteeism, and have been dealing with unprecedented disruption right across our domestic and international supply chain.

“[Still,]we believe the discount variety sector presents a significant opportunity for growth over the medium to long term,” Reich said.

Reich said Reject Shops located in regional areas fared better during the Omicron wave as people avoided busy shopping centres and the CBD for fear of contracting the virus.

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