Ollie’s Bargain Outlet (“Ollie’s”) is a discount retailer offering brand name closeout merchandise through 202 stores across 17 states. The compelling value proposition Ollie’s offers consumers of “Good Stuff Cheap®” is directly a function of their ability to capitalize on an operating model that is aligned with and supports their business model. Specifically, Ollie’s has a number of operational levers that they can pull to drive sales and profitability, including their ability to effectively source, distribute and optimize merchandise across categories, as well as their loyalty program, Ollie’s Army. At the core of their business model is a differentiated retail concept offering consumers a fun shopping experience and compelling value proposition as products are sold at up to 70% off department and 20-25% off mass market prices because of their sourcing strategy and operational strengths. In their most recent earnings call, Ollie’s estimates FY15 total net sales of $745 million (17% increase), driven by comparable store sales growth of 4%, and Adjusted EBITDA of $95 million (19% increase), representing a 13% margin.
Treasure Hunting: The Ollie’s motto of “Good Stuff Cheap” draws an attractive customer base of “treasure hunters” to the store to make repeat purchases. Ollie’s offers a unique shopping experience distinct from those of traditional department stores (a.k.a. “fancy stores”) and mass market (e.g. Walmart) with significant cost savings to the consumer. The fun and distinctive signage throughout the store and “treasure hunting” atmosphere lends itself to a customer experience that drives customers to buy now (“when it’s gone, it’s gone”) and more frequently visit the store.
Merchandise Optimization and Private Label: Ollie’s offers products across a variety of categories, including housewares, food, books & stationary, bed & bath, floor coverings, toys, and hardware. In addition to brand name and closeout merchandise, which comprise the majority of purchases (70% in FY14), Ollie’s also offers private label goods in categories where the consumer is not as conscious of brand, e.g. furniture.
Procurement: The Ollie’s motto of “Good Stuff Cheap” also applies to their procurement strategy as a key success factor for their operating model is the ability to cheaply source recognized, name-brand merchandise to provide value for the consumer. Namely, their ability to continuously attract customers is largely contingent upon their ability to continuously source closeouts, overstocked and salvaged merchandise through a variety of channels, including rather creative ones, e.g. bankruptcy sales.
Distribution and Footprint: A real estate feasibility consultant estimated that there is an opportunity for more than 950 Ollie’s locations in the U.S. and Ollie’s has planned for the long run accordingly. Ollie’s has two distribution centers in PA and GA that can support between 375 and 400 stores and has invested in their infrastructure, allowing them to continuously grow their store footprint.
Ollie’s Army: Over 55% of sales in FY14 were from members of the Ollie’s loyalty program, Ollie’s Army, which is 5.2 million users strong and a key component of their operating model. Generating recurring revenue at existing stores by drawing in these customers more frequently benefits the company from a comparable store sales perspective, which is critical for retail businesses of this nature.
Overall, the key elements of the Ollie’s operating model are aligned with the key elements of their business model, from their procurement to their sale of “Good Stuff Cheap.” Their merchant team has successfully leveraged their increased scale and entrenched supplier relationships with manufacturers, distributors and retailers to select the best opportunities in order to offer a compelling value proposition to their customers. In fact, the business has been able to be more selective recently as their IPO this summer drove additional sourcing opportunities from the increased visibility. By consistently appealing to their attractive customer base, Ollie’s has been able to profitably grow; all their stores have been profitable in each year since they opened their first store in 1982.