Bargain-price retail isn’t the easiest industry to survive within, much less prosper. Successful chains need to hone a sharp competitive edge to sustain profit margin and feed top-line improvement. Motley Fool contributor Asit Sharma reveals the single competitive strength that’s kept Ollie’s Bargain Outlet (NASDAQ:OLLI) a few steps ahead of rivals over the past several years.
A full transcript follows the video.
Asit Sharma: At the time, it’s a tagline. It’s also a strategy. “Good stuff cheap.” That’s their business strategy, as you laid out their business model. Founder-led. You’ve talked about this and the treasure hunt.
So this count now is 360 stores. They’re in two more states as of this. If you think about this, closer to 1,000 today. This is the national store opportunity. Let’s look at this compounded annual growth rate. It slowed a little bit with the pandemic, but historically from before the IPO to a few years after, you can count on Ollie’s to generate about a 15% revenue growth rate. I’m normalizing this 18% number just a bit, and they really had, as most retailers did, they had some challenges in the first quarter of this year. So of retail stores, if you invest in this space, that’s a pretty decent number.
Let’s take the dollar stores as an example. A well-run dollar store — like a Dollar General — is going to hit maybe 6% to 7% revenue growth in a quarter, year-over-year growth. So Ollie’s is a faster-growing concept in terms of its same-store sales, and net sales as well.
Here we have the breakdown, which, it’s an intriguing mix here because this would indicate that out of all of these categories, housewares is one of the biggest categories. They’re a lot on the consumption side. It indicates, if you look at this, the food component plus the housewares… again, dollar stores when they talk about consumption, they’re talking about essential items. It’s not just the things we eat, but it’s food plus cleaning supplies, things for your house, small times that make life easier, and that’s a pretty big percentage. So in some ways, they actually… I think Auri’s right. They are not direct competitors with dollar stores. They don’t have that recurring private-label business, which Dollar Tree, Dollar General are trying more and more — those are the two biggest chains in the U.S. — to shift more brands into recurring things and have a manufacturer just supply them to them.
But they have to necessarily compete with these guys. Their edge is they may be getting the stuff a bit cheaper.