Why The Reject Shop is rejecting online – for now

Not all of Australia’s major retailers are scrambling to boost their online offering.

Discount retailer The Reject Shop has no immediate plans to sell its goods online as “the business case isn’t there,” its CEO Chris Bryce told media this morning.

The discount retailer’s profits are up 35.6% to $18.3 million, as the value of its sales grew 9.9% to $545.3 million, Bryce revealed today.

It’s a good result, especially given the circumstances. In last year’s Queensland floods, The Reject Shop’s $16.6 million automated distribution centre was all but destroyed, forcing the discount retailer to source its goods out of its Melbourne distribution centres, short-changing all its stores for the better part of 11 months. The company also faced all the usual woes retailers have been feeling, including subdued consumer spending.

The Reject Shop has staked its profits profits to bricks and mortar. Bryce said it plans to open 20 new stores in the 2013 financial year, and is looking for new sites. That’s on top of the 18 new stores it opened last year, and the dozens in the years before that. The retailer now has 250 stores: double those it had five years ago.

Online shopping has affected it only indirectly, Bryce says.

“We believe increased online shopping has impacted our business indirectly by taking customers away from shopping centres,” he says.

“While we continue to consider the opportunity to sell online, we don’t see a business case to do so.”

On one level, Steve Ogdan-Barnes, a retail industry fellow at Deakin University, says he can see Bryce’s point.

“If The Reject Shop relies on impulse purchase customers, who might not know quite what they’re looking for, or who want low-value, high-volume things like birthday decorations, it might be difficult to see how they could gain from online.”

But on the other hand, The Reject Shop might be missing a big opportunity, he continues.

“The online customer is here to stay. The question is what you can sell them.”

“What they sell at the moment might not be a natural mix with online, but they could sell other things that could be, that still fit with their brand positioning in different categories.”

“For example, things like outdoor furniture, or larger storage items, may not be appropriate to keep in their stores. But they could be good sellers online.”

Brian Walker, the CEO of retail consultancy the Retail Doctor Group, says that while online might have less relevance for The Reject Shop than for many other retailers, he disagrees with Bryce as to the business case.

“Three quarters of consumers pre-search what they need online, especially for large ticket items. I don’t see the logic that says The Reject Shop should be completely isolated from that behaviour.”

“I absolutely think the majority of their business is likely to be done in-store. It’s a credit to them that they have such a relevant offer to their market. But we only have to look at the research to show the value of an online site.”

“Even if they only get 3-4% incremental growth a year from online, I suggest that would be a very good growth.”

Part of The Reject Store’s difficulty with making the online equation work is likely to lie in the fact that its products sell cheaply. Postal costs, in many cases, could thus be larger than the base cost of the item being shipped.

But if supermarkets can make money selling online, so can The Reject Shop, Walker says.

“They might create bulk purchase offers to offset their shipping costs, or have a minimum purchase. The customers will show what works.”

Ogdan-Barnes says no retailer can afford to ignore online selling anymore.

“For many years, retailers have had their heads in the sand hoping it would go away, or bemoaning the fact that it even exists. Not everyone may need to adopt online selling. But they should at least consider its potential, not just in terms of what they currently sell, but what they could sell.”

Myriam Robin is a journalist with LeadingCompany. You can follow her on Twitter at @myriamrobin This article first appeared on Leading Company.