Why a wacky discount store is buying up the remains of Toys ‘R Us

Why a wacky discount store is buying up the remains of Toys ‘R Us
Dwight Burdette

You may have never heard of Ollie’s Bargain Outlet. But this eccentric discount chain wants to open hundreds of new stores across the country.

Ollie’s is one of the wackiest stores around. Its logo is a caricature of founder Oliver “Ollie” Rosenberg with a goofy mustache and buck teeth. Ollie’s boasts that it has “semi-lovely” stores. It doesn’t sell online. And it pokes fun at itself to win over customers.

“A cartoon picture of their founder looks odd, but people seem to like it,” said Neil Saunders, managing director at GlobalData Retail.

Ollie’s stock (OLLI) has nearly quadrupled since it went public in 2015. The company has posted 18 straight quarters of comparable store sales growth. Profit has more than tripled since the IPO.

On Friday, Ollie’s said that store sales during the holidays increased 7.1% from a year ago and raised its guidance.

But is America ready for more Ollie’s Bargain Outlets?

Space heaters to lawn chairs

Ollie’s is currently capitalizing on Toys “R” Us’ liquidation.

It has bought 12 former Toys “R” Us sites and is leasing another six. In November, Ollie’s opened its 300th store at an old Toys “R” Us location in Maryland.

“These great sites set us up,” Ollie’s co-founder and CEO Mark Butler told analysts last month. Butler declined to comment for this story through a spokesperson.

Stepping into Toys “R” Us spots is one part of Ollie’s plan to enter states like Texas, Louisiana, and Oklahoma. It plans to open up to 650 new stores around the country.

Ollie’s isn’t the only discount chain barreling along.

Dollar General (DG), Dollar Tree (DLTR), TJX (TJX), Ross (ROST), Burlington (BURL), Five Below (FIVE), and Aldi opened up thousands of stores last year. Consumers are searching for value and these companies are seizing opportunities with Sears (SHLD) and JCPenney (JCP) closures and Bon-Ton and Toys “R” Us’ disappearance.

Ollie’s business is different from its competitors. Although TJX, Ross, and Burlington mainly sell clothes, and dollar stores offer packaged food and household basics, Ollie’s offers a random mix of everything from space heaters to speakers to comic books at no-frills, warehouse-style stores.

“The products are a lot more eclectic than a TJX or Ross,” said Saunders. “It’s more like a dollar store with lots of different categories.”

Closeout sales

Ollie’s sells big brands like Kellogg, Hasbro, and Yankee Candle, as well as its own brands, such as Sarasota Breeze and Steelton Tools, for up to 70% less than department stores and 50% less than Walmart.

Unlike others, 70% of Ollie’s store merchandise comes from buying rock-bottom closeout sale items from manufacturers and retailers.

The company has a 16-member team that scours the market for companies’ overstocked baseball gloves and gardening tools, canceled or delayed orders for dishes and cutlery, and discontinued lines of potato chips and kitty litter.

For example, if the summer ends and manufacturers have lawn chairs and umbrellas lying around that they need to unload quickly, Ollie’s will buy them and will store them away until next spring.

“It’s going to be last year’s model, but it’s going to be super discounted versus anything else that’s out there,” said Scot Ciccarelli, analyst at RBC Capital Markets.

Ollie’s is currently running a “scratch and dent appliance buyout” on dishwashers and ovens. “They may have some scratches or dents, but at these prices, does it really matter?”

Ollie’s benefits from disruption in the market.

When Toys “R” Us went under last year, Ollie’s put out an