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Australia: The Reject Shop profit jumps 643 per cent as restructure moves past ‘reset’

Discount Retail department store Chain The Reject Shop’s full year results tell an interesting story one of business suffering under the impact of the Covid-19 lockdown, but also one of a strong reset to an ailing business model.

Total sales in the chain fell 5.1 per cent over the course of FY21 to AU$778.7 million (US$ 570mio), as lockdowns around the country caused shoppers to avoid public spaces, with many of the businesses stores located in shopping centres and CBD locations: areas hit particularly hard by movement restrictions.

Comparable store sales fell 19 per cent in total, with large shopping centre and CBD stores making up the bulk of that. The Reject Shop was also hit with AU$9 million (US$ 6.6mio) in unbudgeted costs to international shipping, with costs of shipping goods from overseas increasing “each month” according to the business.

Despite this, the Reject Shop turned a profit 643 per cent higher than the year prior, hitting AU$8.3 million (US$ 6.1mio), well above the AU$1.1 million (US$ 0.8mio) seen last year. This came, largely, from a massive cut to the cost of doing business, saving AU$22.5 million (US$ 16.5mio) over the year, as it transitions through the ‘fix’ phase of its restructure, and into the ‘reset’ and ‘grow’ phases in the year ahead.

During the year, the business renegotiated 80 leases that were in holdover or had expired, and will renegotiate a further 140 in FY22. The Reject Shop also simplified and standardised store processes throughout its network, leading to labour costs falling to 13.9 per cent of sales. This was, according to chief executive Andre Reich, the objective for FY21.

“There is still lots to do, but I’m proud of how much our team as achieved and how well they have responded to the significant changes and challenges that have occured within our business, and the trading environment, during the year,” Reich said.

“Our turnaround is progressing as expected despite operating in a very uncertain and challenging macro environment, having a significant impact on customer behaviour. “I’m hopeful that customer shopping behaviour will normalise once broader concerns around Covid-19 reduce and more of the community are vaccinated.”

Chairman Steven Fisher said he was looking forward to the shift in how the business operates in the next year. “FY21 was a difficult year as a result of the volatility associated with Covid-19, combined with the complexity associated with the international supply chain,” Fisher said. “Notwithstanding these macro challenges, I’m pleased with the progress made in relation to cost management during the year.” And though the business is in a positive position, it said it won’t provide guidance for the year ahead, given the continuing uncertainty in the market based on the spread of Covid-19’s delta strain, and the slow vaccine rollout keeping customers indoors.

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