The share price of popular discount retailer Reject Shop Ltd (ASX: TRS) has been flat since news broke last week that it would begin stocking best-selling products from a major UK supermarket chain.
The Reject Shop has disappointed its investors in recent years. Five years ago today, Reject Shop shares closed at $7.91 – 15% higher than the current price of $6.70. Shares also reacted negatively to the recent release of the Reject Shop’s 2020 annual report.
Over the past 5 years, the Reject Shop’s share price performance has also significantly underperformed competitor Woolworths Group Ltd (ASX: WOW).
Reject Shop inks deal with Tesco
Last week, news.com.au reported that the Reject Shop had inked a new deal with Tesco Plc (LON: TSCO), the largest supermarket chain in the United Kingdom.
Under the deal, the Reject Shop will establish an aisle dedicated to groceries where it will stock hundreds of best-selling Tesco-branded products across ranges including tea, biscuits, soup, rice, pasta and baby care. Health and beauty products will also arrive in Reject Shop stores in the months to come.
The Reject Shop will use its buying power across is 354 store network to secure high volumes of these product lines and offer them to its customers at relatively cheap prices. Undoubtedly, this is great news for the Australian consumer.
Could Reject Shop shares be a buy?
The deal with Tesco is certainly positive news and should help the company to better compete with the likes of Woolworths, Coles Group Ltd (ASX: COL) and Aldi.
However, the Reject Shop is a small company compared to its aforementioned peers and will face an uphill battle to gain market share.
Overall, I will remain a customer of the Reject Shop rather than a shareholder at this time.
