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Reject Shop (ASX:TRS) share price tumbles but it’s property stocks that should be worried

rubber stamp stamping 'rejected' on paper representing falling reject shop share price
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We are seeing a reversal of fortunes today with the Reject Shop Ltd (ASX: TRS) share price crashing and shopping mall stocks rally.

The Reject Shop share price tumbled 8.3% to $6.49 in the last hour of trade as the discount retailer held its annual general meeting.

But comments from its chief executive Andre Reich should send shivers down the spines of retail property stocks instead.

Reject Shop share price vs. ASX shopping centre stocks

He warned that the retailer planned to renegotiate rents for more than 60% of its stores over the next two years, reported the Australian Financial Review.

This didn’t faze mall owners. The Vicinity Centres (ASX: VCX) share price jumped 2.3% to $1.36, the Scentre Group (ASX: SCG) share price gained 2.9% to $2.30 and the Mirvac Group (ASX: MGR) share price added 2% to $2.28 at the time of writing.

But the turn in share prices today is only a blip. The TRS share price has surged 90% since the start of this calendar year, while ASX shopping centre stocks have crashed by between 16% and 40%.

Reject Shop throws down the gauntlet

Mr Reich is threatening to play hard ball. He will not hesitate to close stores if he can’t get what he wants, particularly shops in larger shopping centres.

This is because stores in neighbourhood centres and strip malls have outperformed those in the big malls and CBD locations.

This is probably the result of COVID‐19 restrictions where foot traffic in large malls and city centres have tumbled.

Cutting its way to growth

While Reject Shop is threatening to close stores on the one hand, it’s on the lookout to open new ones in lower cost locations.

It’s also trying to develop its online shopping portal to capitalise on the structural change in the way consumers shop.

Driving cost down is a key priority for the retailer as it’s on the first phase of its turnaround strategy. The key goal is to stop the slide in earnings and expand earnings before interest and tax (EBIT) margins to 5% from 0.6% that it posted in 2020.

Mr Reich is also looking to reduce range of items sold in stores by as much as 75% to simplify operations, cut costs and increase buying power.

Could supermarkets follow Reject Shop’s lead?

To better capitalise on the post-COVID world, Reject Shop will focus on everyday essentials such as detergent, package foods and pet products.

These items are in hot demand as consumers spend more time at home. Just ask Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL).

Speaking of which, I am sure the giant supermarkets are also thinking of ways to cut their leasing costs for much the same reason as Reject Shop.

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Motley Fool contributor Brendon Lau owns shares of Woolworths Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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