From the source: Ross Sudano, The Reject Shop
Ross Sudano has been a retailer for more than 20 years, serving in executive and management roles. Prior to succeeding Chris Bryce as the CEO of The Reject Shop in 2014, Ross was the CEO of Little World Beverages. During his time at the brewery he oversaw a period of impressive revenue and earnings growth, before selling the business to international brewer, Lion, in 2012. Following his instalment as CEO of The Reject Shop, the company has reversed a three-year decline in earnings to lift net profit by 20 per cent.
Company Profile: The Reject Shop
Launching as a single Melbourne store in 1981, The Reject Shop has grown to become one of the biggest players in the Australian discount variety sector, with more than 300 stores nationwide. The company’s FY16 results have turned around a challenging period for the retailer, poising it for the impending completion of a new automated distribution centre in Victoria in 2017.
Inside Retail: The Reject Shop’s FY16 results represented a positive turnaround for the company. You previously mentioned the importance of service in achieving that result – could you unpack that focus a little bit?
Ross Sudano: In terms of service we haven’t focused enormously on service, what we’ve focused on is the right product and the product offering in our store and how we improve the shopping experience. That involves the way we communicate in store, the way we set up our store and how we exit people out of our store. The next phase of development for us is actually to ask: what is our service model and how do we engage both our store team and customers in a different level of conversation.
I haven’t talked about service as something we’ve done; I’ve talked about excellent systems and processes. Excellent systems for us involve how we make sure that every day we set ourselves up to trade, and also ensuring we’re ready for trade and that we’ve got the right product in place. But service in terms of what we can do with our business is an opportunity for us.
IR: Your cost of doing business has also been a big focus, what have you done specifically to streamline business processes?
RS: We have a pretty simple strategy: to create a distinctive offer in the market, which is driven off a depth of understanding of our customers, to lower our costs and improve our instore experience through our people and to reinvest our savings in driving our top line growth.
The whole focus on reducing our costs stems from a very strong understanding that as a value retailer we need to be consistently delivering value for our customers. A focus of everything we do that doesn’t impact on the store experience for our customers is critical in helping us do that.
We’ve gone through, and continue to go through every line of our P&L which is not for sale. So any service we provide, any activity we do, we are looking for different ways of doing it. Either to change the way we do something, to reduce the cost of doing something or improve the outcomes for the same cost. We’ve been doing that now for 12 months and through the team in the business we’ve had some really good results. That’s actually generated a level of energy and momentum throughout the business that’s focused on continuing to reduce our costs.
RS: We’ve got lots of things in the pipeline, but the strategy is pretty simple: focus on customers to drive underlying sales growth and reduce our cost of doing business, which enables us to invest those savings back into driving the top line. Everything we do hangs off that strategy.
For example, with improving the customer experience in store, we’ve got an activity underway at the moment, which looks at the way we communicate in store. So how do we assist people to understand the value proposition we offer? How do we communicate price? How do we assist people with navigation? And how do we bring some personality and fun back into our stores that is consistent with our brand positioning? That experience piece that’s delivered in store links directly to driving sales.
IR: How is the construction of The Reject Shop’s new automated distribution centre coming along?
RS: We are well and truly into construction and are actually in the process of building our automation inside the shed at the moment. That shed, in terms of the physical setup of the shed, is due to be completed before Christmas and we expect then to put the operating processes and procedures in first quarter of 2017. At the moment we are meeting that time schedule and I don’t expect we’ll slip and in terms of cost. We are also in line with the budget we put against the operation as well. So we’re right on target at the moment and the team are doing a good job of bringing that to life.
IR: The distribution centre is part of a wider plan that’s involved the opening of 14 new stores and the closure of six stores. What’s the dialogue around expansion plans like for The Reject Shop?
RS: One of the planks of our offer is convenience, which is the ability for our customers to get in and out of our stores conveniently. So from a property portfolio we look at catchment areas and stores and locations and opportunities and we look at were there are customers within our demographic who can’t or aren’t able to readily access a store, so we go through a network profiling exercise regularly. That looks at what we call light spots, which are opportunities for stores that don’t exist today and then when we identify those spots the property team will go out and find, or attempt to find, us a location that matches our needs and that’s how we approach our network planning.
On the other end, we’re constantly refining our existing portfolio of stores, so we’ve had stores that have been in the business for a period of time, and factors such as foot traffic and trading patterns have changed for whatever reason. We are constantly looking at whether we can continue to grow those sites or whether we can reduce costs at those sites, or whether the outside economics just don’t make sense and in that scenario we may choose to close it.
So you’re right, over the last 12 months we opened 14 new locations and closed six, and then last year we closed 9 as well, so over the last two years we’ve closed 15 sites, which is us tailoring our portfolio and improving our underlying economics. We’re also always looking to grow new stores were we don’t have existing stores.
IR: Aldi’s move into South Australia and Western Australia has opened up the market in those states. How has The Reject Shop responded to the growing Aldi threat?
RS: We have a diverse set of competitors that we compete against, Aldi being one of those, in Western Australia we have existing strong competitors, Aldi now coming into the market is an additional competitor coming into those zones. We’ve responded to that in the same way we have on the east coast, continuing our focus on the things that are really important to us. That includes always assisting our customers with getting more for their money, retaining the fun and excitement in our business and having new products that readily rotate on a weekly or monthly basis and then delivering that with a sense fun and enjoyment in store. Our whole business proposition and our customer promise, which is always get more for your money through the fun and excitement of discovering a new bargain is what our whole business is orientating about. So when we do that and we deliver it really well our customers respond really well and we see great customer transactions. Where we drop the ball it has an impact on how our customers engage with us. There’s a lot we can do within our own control to influence our financial outcomes.
IR: Groceries have been a big part of The Reject Shop’s product mix; are you revaluating that now in light of the success that Aldi is enjoying?
RS: FMCG has been a cornerstone of what we do and it’s important in bringing people into our stores on an everyday basis. We constantly revise how much space and how much focus we put onto different categories and how we grow those categories, so we do that as part of our business every six months, we constantly revise those metrics, so that will continue over a period of time.
Aldi’s been in the market on the east coast now for many years and they may be new entrants into Western and Southern Australia, but on the east coast where we trade in the same catchment areas as Aldi and others we continue to trade really well, so our business model stands up.
IR: Retailers across the board are signalling concern in relation to low sales growth in an economy where consumers are keeping a tighter hold of their disposable income. How has that affected The Reject Shop?
RS: We’re no different to other retailers in terms of consumer confidence being one of the key drivers of growth and the customers’ willingness to spend the extra dollar. I would say, not dissimilar to many others, that consumer confidence across the market is at best patchy. Consumer confidence in Western Australia is very different to consumer confidence in New South Wales and that has an impact.
From our perspective I think that when you look at consumer confidence there’s this whole discussion around jobs, job security, underemployment and then how people feel about their disposable income with no real wage growth. I think all of that is playing into low levels of consumer sentiment. In the short term those are the headwinds we have to face into; in the longer term we will deliver on our strategy and will continue to be relevant in the discount segment, which I think is an increasingly important segment and growing in its level of acceptance amongst Australians consumers. When we continually deliver value I suspect that will play right into our consumers.
IR: Is that the biggest concern for you as a retailer in Australia at the moment?
RS: The biggest concern is around consumer confidence, we can’t influence that, and we just have to do everything we possibly can. It is patchy though, so there are segments were consumer confidence is higher than other areas, but I don’t want to overplay it. It’s important, but it’s not all doom and gloom.
IR: Recently you’ve been flexing your online muscles, utilising online blog content and social media campaigns to drive customer engagement, I’m wondering where you see those initiatives as fitting within the company’s wider business strategy?
RS: Great question. I think there’s a great opportunity to improve our digital offering and the way that we engage with our customers, so we’ve started down this path already. We’ve started to build a database of consumers who we regularly stay in contact with and we now have a network of over half a million of those customers. We’ve also grown our connections on Facebook and social media to over 250,000 people. We have this whole focus on engagement through the use of digital and we’re working out what the next steps are, looking at how we can improve the quality of information we are providing and asking how we can continue to use digital as a way of engaging customers beyond the store, but we’re very early into that process. I see that as a great opportunity for us moving forward.