By Neil Saunders
Although comparable growth was weaker than recent quarters, this was a good trading period for Ollie’s. The business is going from strength to strength. Even so, we are a little disappointed that comparables were not higher, especially given the soft results from last year and the more robust consumer economy over this quarter.
Given the diverse geography over which Ollie’s now trades, the model works across many regions. Stores tend to be neat and well presented, making them easy to shop.
Still, Ollie’s continues to make significant gains in overall sales, which rose by 21% from last year. Much of this is due to the 37 stores the company has opened over the past 12 months, which includes expansion into new states, including Rhode Island. Given the diverse geography over which Ollie’s now trades, the model works across many regions. This suggests that there is significant scope for future expansion across the country. The long-term goal of 950 shops looks feasible, although this will take many years to deliver, given that Ollie’s currently has under 300 stores.
As the company gets larger, 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 also has an advantage over other bargain players. Not only are the company’s assortments and ranges broader than those of many competitors, but the percentage of high-quality branded products is also high, which helps contribute to the sense of value for the dollar.
As strong as the proposition is, Ollie’s is growing while many other bargain, value, or closeout retailers are doing the same. This is moving the market, at least in parts of the country, nearer to saturation. So the future battle will be won by retailers that can best defend their own market share and steal share from other players.
We are encouraged by Ollie’s loyalty program, which rewards regular shoppers, known collectively as Ollie’s Army. The introduction of ranks to this scheme, each of which is earned at a different level of spending, will help secure customers and encourage visitation and purchasing. The integration of this scheme into a mobile app will make it more appealing and easier for customers to track their progress.
Although Ollie’s is expanding and investing in services such as loyalty programs, it is keeping a tight grip on costs. Along with the fact that new stores mature and move into profitability rapidly, this has helped to boost both the operating and net income lines. These gains are expected to accrue over the coming year as Ollie’s benefits from better economies of scale and the maturation of new outlets.
Despite the positivity, comparable sales will likely remain more muted than over the past year. This is because some older stores have now fully matured and are delivering much shallower gains, and because the consumer economy looks slightly tighter with shoppers set to become a bit more frugal. Fortunately, Ollie’s has more than enough firepower to cope with this relative slowdown. So the year ahead looks positive.
Neil Saunders is managing director of research firm GlobalData Retail.