By Håkon Helgesen
After a good, but slightly weaker, first quarter of comparable sales growth, Ollie’s is more than back on form with some very strong numbers across all lines. Total sales increased by 20.5%, with contributions from same-store uplifts bolstered by the opening of 34 new stores over the past year. Despite the expense associated with expansion, Ollie’s has managed to drive the bottom line with impressive uplifts at both operating and net income levels.
Not only are assortments and ranges broader than those of many competitors, the percentage of high quality branded products is also high — something that helps contribute to the sense of ‘getting a bargain.’ Stores tend to be neat and well presented, making them easy to shop.
To a certain extent, Ollie’s is a beneficiary of the continued consumer desire for a bargain, especially on branded products. It is also helped by its constantly changing assortment which drives customer traffic into stores. In many ways, this is similar to the type of model employed by off-price retailers like TJX, albeit in this case across a much more diverse range of products.
Given its proven proposition, it is not surprising that Ollie’s continues to expand at pace. The company recently celebrated the 250th store opening and is now present in 20 states. As much as this is a reasonable number, there is plenty of headroom for further expansion, and we are encouraged by the company’s focus on penetrating new markets. The long-term goal of 950 shops looks feasible, although this will take many years to deliver.
While Ollie’s is expanding, one of the slight issues is that many other bargain, value or closeout retailers are doing the same. This, in our view, is moving the market – at least in parts of the country – towards saturation. As such, the future battle will be won by the retailers that can best defend their own market share as well as stealing share from other players.
On this front, we believe that Ollie’s has an advantage in terms of its proposition. Not only are assortments and ranges broader than those of many competitors, the percentage of high quality branded products is also high — something that helps contribute to the sense of ‘getting a bargain.’ Moreover, as the company gets larger, we believe that its ability to access and source more good products from closeouts, overstocks and other events will improve. Despite the varied assortment of products, stores tend to be neat and well presented, making them easy to shop.
Ollie’s is also good an explaining its proposition in a simple but compelling way, which is encapsulated by its “Good Stuff Cheap” strapline. Advertising and marketing also focuses on the unexpected bargains consumers can find in stores and, as such, is a good way of building traffic, especially in areas where Ollie’s is less well known.
Overall, we believe Ollie’s is becoming a more significant force in the value segment.
Håkon Helgesen is an analyst at GlobalData Retail.