'Nobody is doing what we're doing': The Reject Shop boss reveals plan to take on Kmart and transform discount chain into a $3billion powerhouse

The Reject Shop has vowed to take on Kmart and Aldi in the battle for Australia's most popular discount retailer after enjoying a huge surge in business during the COVID-19 pandemic. 

Bosses at the budget retailer have been boosted by investment banking firm Morgan Stanley last week predicting The Reject Shop's stock could be worth $3billion within 10 years.

New CEO Andre Reich said the store - which first opened in Australia 40 years ago - was looking to capitalise on its niche at the lower end of the nation's retail market.

Pictured: A The Reject Shop store in Melbourne. Bosses at the budget chain have Aldi and Kmart in their sights as they look to capitalise on Australia's lower-end retail market

'There are heaps and heaps of mid-market brands like Coles, Woolworths and Myer and even online players like Catch and Amazon, but their prices are a little higher and nobody is really doing what we’re doing,' he told news.com.au.

He added The Reject Shop has the advantage over the larger companies in that its average store size is just 500sqm - allowing the brand to spread into regional and suburban locations too small for super-stores.

'We may go head-to-head with them in larger markets, but there are many rural and suburban opportunities which means we would have the ability to reach more customers to our advantage,' Mr Reich said.

The store has 354 locations across Australia and annual sales of more than $900million.

The Reject Shop made a $2.7million profit this year despite the economically crippling effects of the coronavirus pandemic.

Executives have attributed the company's 2020 success to high sales of essentials such as toilet paper, cleaning and pet products and groceries during the COVID-19 panic buying craze.

There was also increased demand for craft and stationery products, toys, garden items, furniture, electronics, hardware and kitchen items due to shoppers spending more time at home. 

This year, the chain has also overhauled its executive team to push the business to new heights.

The Reject Shop CEO Andre Reich said the company was focused on expanding its product selection to rival other retailers. Pictured left homeware items on sale at The Reject Shop and right a similar range at Kmart

Mr Reich was previously the chief operating officer of Target - while chief financial officer Clinton Cahn joined The Reject Shop earlier this year.

He said the company was focused on expanding product selection - with a focus on the teenage market on the horizon and more on-trend stationery and clothing available in store.

He said the social stigma attached to shopping at lower-market retailers like Aldi and Kmart had mostly disappeared over the past decade and Australians were more willing to buy lower-end goods if it meant saving money.

'Australia is a very expensive place to live but we also want to have everything we need for a good life so if you’ve only got a fixed income, you’ve got to find ways to save in certain areas,' he said. 

Kmart shoppers at a store in Sydney. Mr Reich said much of the social stigma surrounding budget stores had disappeared in recent years

The Reject Shop's share price has meanwhile risen since the start of the coronavirus pandemic, from $2.53 in March to close at $7.77 on Tuesday.

Chairman Steven Fisher said the numbers show the turnaround strategy – a three-phase plan to fix, reset and grow the business – is working.

'The new leadership team has stabilised the business – the company has returned to profitability, has significantly reduced its inventory and has a strong balance sheet,' Mr Fisher said.

The company is currently in the fix phase, which aims at cutting costs where possible.

In-store labour costs have been cut from 15.4 per cent of sales in the 2019 financial year to 14.5 per cent in 2020 due a new rostering system.

This involved cutting one in five head office jobs, although this added $1.5million in one-off redundancy costs in the 2020 financial year.

Crowds of pedestrians wearing face masks walk on a Sydney CBD street on Saturday. The Reject Shop has surged in popularity during the COVID-19 pandemic as Australians rush to buy emergency supplies