Extreme value retailer Ollie’s Bargain Outlet said Wednesday (June 8) that an expected consumer trade-down to deep discount stores had not meaningfully materialized yet but predicted that would soon change due to the impact of record high gasoline prices and swelling inventories at “Big Box” rivals.
The comments come as the Pennsylvania-based operator of 439 stores in 29 states delivered first-quarter earnings results for the three months ending April 30 that saw its total sales falling 10% and its same store sales drop 17%.
“I do think we’re seeing a little bit [of a trade down] but we’re not seeing what we would expect to see yet,” Ollie’s CEO John Swygert told analysts on the company’s conference call. “I think there’s still more to come and I think there’s probably another three to six months before we see the full benefit [of the trade-down] come through,” Swygert added, noting that the retailer’s Q2 sales so far in May and June were showing improvement.
“In this highly inflationary environment, we believe that price becomes increasingly important,” Ollie’s CFO Jay Stasz, who also announced he is stepping down June 30 after six years with the company, told analysts.
A Changing Marketplace
The comments from Ollie’s come just one day after Target laid out an “aggressive cost control” plan that would see that general merchandise retailer cutting prices to clear out inventory, canceling orders and tweaking its logistics and arrangements with suppliers.
To that point, Ollie’s said it was already seeing an uptick in a so-called deal flow of merchandise being liquidated and was preparing its owner buyers to be ready.
“We watch it each and every day and our merchants have been looking at what the big box retailers have been doing with some of their price reductions to try to move some of their inventory out,” Swygert said. “We’re starting to see it everywhere and I think that’s not a surprise to anybody on the call that things are changing in the marketplace and we’re starting to see some pretty large opportunities for us and our customers.”
In particular, Swygert pointed to “outsized flow” right now in the health and beauty, housewares, sporting goods, bed and bath, lawn and garden and toys segments but stressed that the build of sellers and merchandise was happening in almost all categories.
Dry Powder
While Ollie’s is expecting to see an increase in liquidated or closeout to buy, it is also likely to face increased competition as general retailers such as Target get more aggressive on price.
That said, Swygert noted that so far, sales at rivals have not been able to compare with its branded clearance sale pricing, and if and when it does, he said Ollie’s would respond.
“We still have a nice value proposition compared to what [other retailers] are offering, so we’re not finding any problems with our current pricing,” he said. “But if there’s someone who has the same item that we do, and they’re beating us on price we will take the markdown accordingly but we’re not seeing that yet.
Meanwhile, Ollie’s has put all of its own buyers on watch to be ready to ready to make aggressive bids on closeouts, whether being offered by retailers or through manufacturers that have been hit with canceled orders.
“The big thing that we keep going back to is the concept of ‘dry powder,’ and that’s our merchants being very patient and confident that the deals are going to come and make sure they wait for the absolute A++ deals,” Swygert told analysts, predicting a busy and aggressive back half of the year for both bargain hunters and closeout buyers.
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