The Reject Shop rejects online store

Discount retailer spurns online shopping site

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published September 17, 2013 2:55 pm AEST

You may be surprised to learn that The Reject Shop (ASX:TRS) doesn't have an online store, and at present has no plans to develop one.

CEO Chris Bryce says it's a deliberate strategic decision for now. "We've yet to be able to make the numbers stack up," he told the Australian Financial Review (AFR). According to Mr Bryce, the average basket size is between $10 and $11, with customers tending to buy one or two of a particular item. But the costs of distribution are several times that of the average purchase. The AFR notes that The Reject Shop would need a basket size of between $60-$70 to make an online store work.

Mr Bryce says that the company has looked at several possible models, such as a "Click and Collect" approach, including two or three times in the past year, but none of them have ever stacked up. It makes The Reject Shop something of a dinosaur, with a furious online battle taking place against traditional bricks-and-mortar retailers.

Companies like David Jones (ASX:DJS), Harvey Norman Holdings (ASX:HVN) and Myer Holdings (ASX:MYR) were caught short by the popularity of online shopping, and have really only taken it seriously over the past few years. Both department store retailers still have some work to do to their online sites, to keep up with competitors offshore and locally.

But The Reject Shop doesn't have the same issues as other retailers. No-one is really going to buy something online for $10 or $11 plus postage and then wait at least a few business days for their package to arrive, when they can simply pick up an item in a Reject Shop store at the local mall.

And soon those stores will be in 80 plus more locations than two years ago. The Reject Shop has taken advantage of the slide into administration of competitor Retail Adventures, and has opened 41 new stores in the 2013 financial year and wants to open 43 this financial year – double its usual annual rollout pace.

Foolish takeaway

Many of those stores will be open within the first half of this financial year, which should see The Reject Shop generate substantial sales growth for the 2014 financial year. Analysts expect The Reject Shop to report earnings per share of 90 cents this year, followed by $1.16 in 2015, but that could prove to be low. With the price falling recently, Foolish investors might want to add The Reject Shop to their watchlists.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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