HC3152 - E-Business Application Report: Reject Shop Analysis

This report examines the Reject Shop, a discount retail chain in Australia, analyzing its current operational state, market risks, and future prospects. It investigates the impact of factors such as international competition, changing customer behavior, and the growth of online retail on the Reject ...Read More

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E BUSINESS APPLICATION
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Table of contents
Introduction 1
Current state 3
Unforeseen risks 5
International retailers risk 5
Changing customer behaviour risk 5
Online retailers risk 5
Conclusion 6
Recommendations 6
Reduce cost of doing business 6
Customer research 7
Upgrade online platform 7
References 8
Appendix 9
Introduction
Dynamics of the retail industry in Australia is evolving at an extremely fast pace that the
laggards are at risk of being left out of the market. From fast moving technology to the changing
taste of consumers, the industry has become more competitive and retailers have to change their
strategy to remain afloat (Bailey et al 2015).
With the retail industry accounting for a large part of Australia’s business activity, the
survival of the industry is crucial for Australia’s economy. The retail industry generating sales of
up to 311 billion dollars per annum and employs 1.3 million Australians.

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The major risk to Australia’s retail industry is not the sales component since customers
would always require goods despite the channel of delivery. The risk would be loss of jobs due
to online retail stores taking large chunks of market share (Balaji and Roy 2017). The ripple
effect may be damaging to the economy.
According to Erica Berchtold, Managing Director, Rebel Sports, the two major risks to
Australia’s local retail stores are overseas companies like Amazon and the changing taste of
consumers. International companies are huge and efficient in their operations hence have lower
overhead costs compared to local retailers. The consumer has also gotten richer, busier and
cosmopolitan in taste making it difficult to pinpoint what the consumer wants from a product
(Retail Prophet 2018).
Daug Stephen of retail prophet claims that retail stores would be required despite the
continuous growth of online retail markets. His argument borders on the fact that humans not
only shop to acquire goods but to fulfil the innate need of socializing. Netscape founder Marc
Andreessen perspective that retail would be dead seems more logical due to the fact that humans
can indulge in many other socializing activities other than shopping. Furthermore, the future
human being may be extremely busy and may have no time to indulge in such socializing
activities like shopping.
To investigate the significance of changes in the retail industry, we would examine the
current status of the Reject retail shop based in Australia and determine what the future looks
like for the retailer (Retail Prophet 2018). We would then recommend suitable strategies that the
retailer may deploy to remain relevant in the near future.
Current state

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The Reject Shop was founded in 1984 to operate as a discount variety retail shop in
Australia. Their target market are customers who are attracted to low prices and opportunities to
buy at a bargain. Offering a wide range of consumer merchandise, Reject Shop is one of the
largest retailers in Australia currently operating over 347 outlets. The retail store employed 5,430
personnel in 2017 down from 5,578 in 2016.
In the year 2017, the company generated sales amounting to 794 million dollars with a
net profit of 12.34 million dollars (Smart Insights 2018). The net sales declined by 0.7% year on
year (YoY) and the net profit declined by 27.80% from 17.10 million dollars in 2016 to 12.34
million dollars in 2017.
The large decline in net profit in comparison to decline in net sales was attributed to
increase in cost of doing business (CODB). CODB excluding amortization and depreciation
increase by 0.8% to sales. Rise in store expenses from 32.20% to 33.00% contributed largely to
CODB increase (Smart Insights 2018).
Store expenses that increased included store wages which increased 0.7% relative to
sales, advertising costs which increased 0.16% to sales and store refurbishments which increased
0.21% to sales. The increase in store expenses had significant impact on the net profit of the
company during the year 2017 (Smart Insights 2018).
According to the director’s report 2017, the business faced the following risks in future
operations:
Competition: the company’s business model involves retail operations that is price and
value sensitive. Since the customers are looking for a bargain, the company is exposed to high
competition and has to constantly monitor price changes of other retailers to remain competitive.

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Consumer discretionary spending: the company is vulnerable to consumer spending
patterns. Low income for consumers indicate low business for the company since most of its
customers are extremely price sensitive (Bayly, Scollo and Wakefield 2014).
Increased cost of doing business: lease agreements, store and distribution staff enterprise
agreements which have annual escalations increase cost of doing business for the company. The
costs increase despite the company’s effort to increase efficiency in operations and lease
agreements.
Property portfolio management: the company negotiates its stores leases independently
upon expiration. There is no guarantee that a business outlet lease would be renewed in terms
favorable to the company. This exposes the company to risk that an outlet may be closed.
Exchange rate: the company relies heavily on imported goods hence fluctuations in the
exchange rate may expose the business to losses. The company may hedge against this risk by
forward contracts but they are not full proof (Tamm,et al 2015)..
Product liability exposure: the company sells numerous products which may be exposed
to defect which may leave the company liable. This may cause the company to incur losses in
compensating clients who have bought defective products.
Unforeseen risks
Apart from the above stated risks, the Reject Shop may be exposed to other unforeseen
risks that the company deem immaterial in their current operational structure. The company may
be exposed to the following risks according to the trends of retail stores in Australia (Sutton-
Brady et al 2015).
International retailer’s risk

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In 2017, eight global retailers entered the Australia market. From AliBaba to Amazon,
global retailers are flocking the local market which means increased competition for local
retailers. The Reject Shop may be exposed to increased competition since the efficiency of
global retailers may be better and their customers may get better bargains (SmartCompany
2018).
Changing customer behavior risk
Customers are increasingly becoming more enlightened in their choices. Technology has
increased the availability of information to customers hence increasing their ability to make
decisions. With more avenues for price comparison, the Reject Shop may be exposed to
customer flight since most of their customers are bargain hunters. Customer retention should be
one of the major endeavors of any company (Schlegelmilch 2016).
Online retailer’s risk
The online retail market has been growing at a steady rate eating into the brick and
mortar retail store market. According to e-marketer, growth of online retails is expected to
continue at a steady rate of about 18% annually until 2022 as indicated by the graph. This would
be a major risk for the Reject Shop which is already experiencing declining sales. Although the
company has an online presence, it is not well established and most of the sales are from physical
retail stores.
Conclusion
To conclude, the Reject Shop and all brick and mortar retail shops are at risk of going out
of business if they do not evolve. A mix of online and physical shops should be the way to go for
many local retailers in Australia. Online retail would enable local retailer’s access larger markets

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than only Australia while catering for clients who want to shop online locally (Booth and
Whelan 2014).
The fast changing need of consumers means that the retailer should be extremely fast in
collecting market data and implementing solutions after data analysis. It is easier to collect data
via online platforms than retail stores hence embracing online retails would be a big win for local
retailers.
The future is geared towards efficiency and the overhead costs incurred to set up retail
stores will not cut it. Local retailers would have to reevaluate their strategies and see how they
can compete with global brands who have pushed operational efficiency to the limit.
Recommendations
The following recommendations would be applicable for the case of the Reject shop:
Reduce cost of doing business
Although the reject shop reduced the number of employees, the cost of doing business
still increased due to their operational costs. This is a major issue for the institution considering
that their sales shrunk in the stated period. The company should work to reduce their overhead
costs. This may even mean a revamp of the company's strategies since they are now competing
with extremely efficient competitors.
Customer research
One of the mistakes stated in the KPMG report was assuming that you know your
customer. Many successful retailers fail to keep researching on their customer hence they
gradually fail to capture their needs and wants (Hajkowicz, Cook and Littleboy 2012). This may
be the case for the Reject shop and the management should do more to collect customer data to
evaluate what the customer wants.

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Upgrade online platform
The reject shop already has an online platform but it seems more of an accessory that is
put in place just because the competitor has it. The company should work on their online
platform to provide as much satisfaction as their physical retail stores do. Most online platforms
are failing in the after sell service in which the company may focus their efficiency at. The
customer needs to feel that the company is concerned on how well the product is functioning
after purchase. Is it meeting the customer perceived value?
The above recommendations may spur the Reject shop to sustainable growth in the ever
changing retail industry.
References
Bailey, J., Price, R., Pyman, A. and Parker, J., (2015). Union power in retail: Contrasting cases in
Australia and New Zealand. New Zealand Journal of Employment Relations, 40(1), p.1.
Balaji, M.S. and Roy, S.K., (2017). Value co-creation with Internet of things technology in the
retail industry. Journal of Marketing Management, 33(1-2), pp.7-31.
Bayly, M., Scollo, M. and Wakefield, M., (2014). No lasting effects of plain packaging on
cigarette pack retrieval time in small Australian retail outlets. Tobacco control,
pp.tobaccocontrol-2014.

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Booth, S. and Whelan, J., (2014). Hungry for change: the food banking industry in Australia.
British Food Journal, 116(9), pp.1392-1404.
Hajkowicz, S.A., Cook, H. and Littleboy, A., (2012). Our Future World: Global megatrends that
will change the way we live. The 2012 Revision. CSIRO, Australia.
Retail Prophet. (2018). The Future of The Retail Store – Retail Prophet. [online] Available at:
http://www.retailprophet.com/the-future-of-retail/ [Accessed 23 Sep. 2018].
Schlegelmilch, B.B., (2016). The Future of Global Marketing Strategy. In Global Marketing
Strategy (pp. 221-249). Springer, Cham.
Smart Company. (2018). Eight global retail giants that have entered Australia this year: A
timeline – Smart Company. [online] Available at:
https://www.smartcompany.com.au/industries/retail/eight-global-retail-giants-enter-australia-
year/ [Accessed 21 Sep. 2018].
Smart Insights. (2018). Ecommerce growth statistics - UK, US and Worldwide forecasts. [online]
Available at: https://www.smartinsights.com/digital-marketing-strategy/online-retail-sales-
growth/ [Accessed 21 Sep. 2018].
Sutton-Brady, C., Kamvounias, P. and Taylor, T., (2015). A model of supplier–retailer power
asymmetry in the Australian retail industry. Industrial marketing management, 51, pp.122-130.
Tamm, T., Seddon, P.B., Shanks, G., Reynolds, P. and Frampton, K.M., (2015). How an
Australian Retailer Enabled Business Transformation Through Enterprise Architecture. MIS
Quarterly Executive, 14(4).

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Appendix