Cult chain set to rival Kmart after $259 million Canadian takeover: 'Cheaper options'

Yahoo

02-04-2025

The Reject Shop is squaring up for a low-cost battle with cult-favourite Kmart after a $259 million overseas takeover of the iconic Aussie discount store. There are hundreds of the recognisable red-and-yellow stores in malls scattered across the country — 386 to be exact.
But that number is set to nearly double after Canadian discount giant Dollarama snapped up the Australian retailer last week. Dollarama has grown to 1,600 stores across Canada and has a majority share in Dollarcity, another low-cost retailer growing in Latin America.
Executives think Australia is primed for a 700-store expansion. So, what does that mean for Australian consumers spellbound by Kmart's discount offerings, or online behemoths, Shein and Temu?
UNSW consumer behaviour researcher Professor Nitika Garg told Yahoo Finance there are potential savings for Aussies as competition heats up and consumers diversify their shopping.
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"A lot of households are struggling to make ends meet right now and the cheaper options are attractive," Garg said.
"It will give competition to Kmart for this segment because they would look at their options when shopping.
"While the cost-of-living crisis is going on, you can see that it will work."
Garg said Kmart and Aldi have "done really well" targeting Australians hoping to save money, but raised concerns about The Reject Shop's longer-term strategy.
"What happens once the economy is doing better, people are more comfortable and have greater discretionary income?" she said.
"Kmart is less logged into its lower-income segment because of the way they have developed and the way they have grown."
The consumer expert said the two retailers don't present a like-for-like comparison.
Both have a range of everyday goods, electronics and even some food items, but Kmart has far more range and diversity of products compared to The Reject Shop.Garg told Yahoo Finance that in order for The Reject Shop to truly succeed, it would need to branch out.
"They need to think about who are they competing against," she said.
"To really compete against Kmart, or to have a viable business model for the long-term, they would have to change their proposition.
"Either you increase the variety or you increase the quality because the name doesn't do you any favours.
"I think that's the struggle that they will have with the increased store numbers."
The cost-of-living crisis has forced more Australians to "cross-shop" to find value and some found wins in the aisles of The Reject Shop.
This was particularly evident as Coles and Woolworths were put under the microscope after recording significant profits as the cost of essentials rose due to inflation.
Tayla Rose was impressed to find household items at the discount alternative considerably cheaper than Woolworths.
A 110-pack of Finish Classic Dishwashing Tablets were available for $19 at The Reject Shop, while they retailed for $26 at Woolies.
Similarly, a 900ml bottle of Morning Fresh Dishwashing Liquid was half the $9.50 Woolworths price.
Rose said it wasn't just cleaning products, featuring savings on items like McVitie's Digestives biscuits, Hercules sandwich bags, Green's cake mix, and mini Oreo snack packs.
A spokesperson for The Reject Shop told Yahoo Finance the chain was 'proud to have the lowest everyday prices across Australia in household cleaning products, health and well-being and snacks'.
Dollarama agreed to acquire The Reject Shop for $6.68 per ordinary share in cash.
When it first debuted on the Australian Stock Exchange in 2004, it was listed at $2 per share.
The purchase of all outstanding ordinary shares put the Aussie retailer at a valuation of $259 million.
Billionaire businessman Raphael Geminder was the biggest shareholder in The Reject Shop and his Kin Group will still own 20 per cent of the business going forward.
The latest full-year revenue showed The Reject Shop pulled off $852.7 million worth of sales in the 12 months to June 30 last year.
However, profit sat at $4.7 million.
Garg said she was intrigued to see if the business can maintain that profit level with more than 300 new stores.
"The volume is not there, not to the same extent as, let's say the US or Canada even," she told Yahoo Finance.
"So, it will be interesting to see what the rational was and whether they are actually correct in anticipating this to be a successful strategy."
Dollarama chief executive Neil Rossy said his team will work with local management to "execute its strategic vision for the business".
"We look forward to embarking on this new chapter of Dollarama's international growth journey with the local management team and its more than 5000 employees across Australia," Rossy said.
"Together, we will leverage our core strengths as value retailers with best-in-class merchandising, sourcing and operational expertise."