How The Reject Shop and other specialist retailers are also feeling the heat from Aldi

It’s not just supermarkets that are feeling the sting of Aldi, as specialised retailers and discount stores are also seeing the German retailer affect their businesses.

Australian discount retailer The Reject Shop is feeling the pressure from Aldi’s rapid Australian expansion, with its stores in Western and South Australia facing reduced sales in the second half of the 2015-16 financial year. It comes on the back of Aldi’s expansion into those states, with Aldi stores opening in SA in February, and in WA in June.

The Reject Shop’s managing director Ross Sudano told news.com.au Aldi “has definitely changed consumer patterns in the market”, and that it will take a “period of time” for the patterns to settle down.

The Reject Shop posted its full year results last Wednesday, reporting 5.7% growth in revenue across its 341 stores. However, sales in the second half of the financial year grew at a slower rate of 1.3%, down from 4.4% in the first half.

“The second half, for us, was quite a challenging half. So we had really good momentum into Easter and then once Easter arrived, and it arrived early, the momentum of consumer confidence seemed to change,” Sudano said.

The Reject Shop has 29 stores in Western Australia and another 29 in South Australia. The company reported a 1.9% gross profit margin fall across the last financial year, citing a lengthy election campaign as one of the factors that reduced consumer activity.

Aldi’s “unexpected” influence

Other retailers have also been paying attention to Aldi’s undertakings, with hardware retailer Bunnings also admitted to taking note of the German retailers weekly deals.

Bunnings Australia managing director Michael Schneider previously said Bunnings sees a spike in its website traffic each week that coincides with Aldi’s weekly Special Buys catalogue release.

“It’s good for us because competition drives you to go harder at what you want to do,” Schneider told investors in June.

Gary Mortimer, retail expert and associate professor at Queensland University of Technology Business School, told SmartCompany Aldi’s impact on these non-grocery retailers is “unexpected.”

“What we’re seeing is the unintentional impact of what Aldi is doing to other retailers,” Mortimer says.

“I think originally the supermarkets underestimated Aldi. They market themselves for food, but they also have a very successful merchandise and apparel department.”

It is this department that’s challenging “third-tier discounters” such as The Reject Shop, as Mortimer believes some of the products at Aldi “reflect what’s sold in The Reject Shop”.

“These third-tier discounters and dollar stores have a range of apparel and merchandise that are similar to what Aldi now offers,” he says.

“Cleaning goods are also a crossover between the two, and these discount retailers can expect to take a hit thanks to Aldi’s offerings.”

Mortimer believes discount retailers should look at their core products and “sharpen up” their prices if there is too much correlation.

“These discounters don’t operate heavily on weekly discounts like Aldi does, so they should focus on comparing prices with Aldi and trying to at least match them,” Mortimer says.

The “Aldi effect” on incumbent retailers is a significant “blip on the radar” says Mortimer, referring to Aldi’s big sales on products like ski wear and bicycle gear.

“People hold out for Aldi’s yearly skiwear sales, and now they’re starting to do the same with cycling goods,” he says.

Mortimer believes retailers in sectors such as skiwear and cycling, will also begin to feel the heat. But Belinda Haley, owner of Bumps Ski and Surf in the Melbourne suburb of Glen Huntly told SmartCompany the specialist store is yet to see Aldi’s promotions affect sales.

“We’re a premium store, so it hasn’t affected sales all that much,” Haley says.

“We’ve more seen an impact in the amount of people hiring ski gear, less people are hiring because more people can get cheap skiwear at Aldi.”

Haley has noted Aldi’s date for its skiwear sale has coincided with Bumps’ yearly sale for the past two years, but doesn’t know if it is intentional.

“We’ve always been on the third weekend in May, and they’ve copied that date for the last two years,” she says.

SmartCompany contacted The Reject Shop but the company said it has “nothing further to add on the discussion about Aldi”.

SmartCompany contacted Aldi but did not receive a response prior to publication.