Why discount chain Ollie’s Bargain Outlet is growing while Big Lots & others are sinking
As other discount retailers like Big Lots struggle to hang onto their businesses and close stores, Ollie’s Bargain Outlet — a chain with a sense of humor and a goofy drawing of one of its founders as a mascot — is quite literally building an army.
Founded in Pennsylvania in 1982, Ollie’s Bargain Outlet now has 522 discount stores in 31 states. The chain primarily sells closeout merchandise and excess inventory from manufacturers and bankrupt retailers, with its best performers including lawn and garden products, housewares, food, sporting goods and candy. The retailer has accumulated a massive base of loyal fans; as of the first quarter, more than 80% of its sales were to the 14.2 million members of its “Ollie’s Army” loyalty program who get different perks based on whether they’re a one-, two- or three-star “general.”
According to a 2019 Forbes interview with former Ollie’s CEO Mark Butler, the company doesn’t have an e-commerce business because it’s almost impossible to duplicate the “treasure hunt” shopping experience online. It’s also why other discount retailers like HomeGoods have shelved their attempts at an e-commerce business.
The popular chain is known for stepping into spaces left by failed retailers. Naturally, analysts expect Ollie’s may have some new spaces to expand into as Big Lots plans to close up to 40 stores this year — with reports saying there could be far more. While Big Lots’ sales fell 10% last quarter, Ollie’s sales increased 11% to about $509 million and the company’s net income rose about 50% year over year.
In 2018, Ollie’s bought a dozen Toys ‘R’ Us locations for about $42 million to open new stores. In May of this year, Ollie’s said it agreed to acquire 11 former 99 Cents Only stores in Texas out of bankruptcy for $14.6 million in cash.
“Big Lots has hundreds of stores that operate in Ollie’s markets outside of a five-mile radius. Given the similarity of store size and business model, we would not be surprised to see Ollie’s become an aggressive bidder for some of Big Lots’ leases in the event of store liquidations,” Truist Securities analysts said in a July 12 report.
“Good stuff cheap”
Unlike other discounters, Ollie’s is packed with name-brand items you would find in any other grocery store.
Anthony Chukumba, a retail analyst with Loop Capital, noticed this in a recent trip to the store he documented in a June 24 report. Seeing brands like Swiffer, Febreze and Tide as well as Coleman camping products, his team was “struck by the plethora of compelling name-brand closeouts we saw throughout the store, which we believe indicates the favorable closeout buying environment of the past several quarters continued into [the second fiscal quarter].”
In an earnings call in June, CEO John Swygert said the closeout sector is growing while the number of big players in the space is shrinking and that Ollie’s is often the first call for vendors given its size and scale. He said large consumer retailers constantly introducing new products and packaging has led to growth in the closeout industry, but that other companies in the space have failed because they were not set up properly. For example, Tuesday Morning, another closeout retailer, closed all its doors last year in bankruptcy.
“We are, by far, the largest buyer of closeout products, and this has been our only business for almost 42 years,” Swygert told investors. “Nobody has our know-how, size and scale or credibility in the closeout market. As a result, our purchasing power is growing, and we are becoming more and more meaningful to our vendor partners.”
Ollie’s executives say the company’s products typically cost customers 20% to 70% less than mainstream competitors. Truist analysts say that is especially compelling to inflation-weary consumers who seem willing to spend but want to get their money’s worth.
“Consumers clearly remain under pressure and are seeking value when making their purchases,” Swygert said. “Everyone loves a bargain, and bargain is our middle name.”
What sets Ollie’s apart
Ollie’s is not afraid to stand out from other discount stores — the company owns it.
“They’re less of a destination place and more of a treasure hunt” compared to other off-price retailers, said Walter Holbrook, principal of Yoda Retail Consulting in Jacksonville, Florida. “I don’t think the customer goes there with a list of what they’re looking for, but they find it once they get there.”
The company, embracing a sense of humor, has adopted a unique, humorous tone in signs throughout the stores that say things like, “Confusion is our most important product.” The company encourages people to sign up for its e-commerce program by asking them if they are “America’s biggest cheapskate.”
“They’re quirky as hell,” Holbrook said. “It’s just all kinds of just stupid slogans throughout the store that is, I think, the complete reverse of a pretentious atmosphere. It’s very down-home marketing, and I love it.”
Ollie’s plans to keep growing its army. It opened more than 100 of its 500-plus locations over the last three years and plans to open 50 in fiscal 2024. The company is also building on the popularity of its loyalty program through a just-announced credit card partnership with financial technology company Sunbit, offering additional loyalty points.
Bill Read, evp of Alabama-based real estate brokerage Retail Specialists, expects Ollie’s to take space from Big Lots and Conn’s, another chain closing stores throughout the U.S., though he said in some bigger markets, landlords may opt for other tenants willing to pay more in rent.
“Ollie’s picks their real estate like they pick their merchandise,” Read said. “If it’s a great price, a good deal and in a needs-based market, they take it.”