Ollie’s to speed up store growth by acquiring bankrupt competitor’s locations
Ollie’s Bargain Outlet Holdings is set to undergo a widespread expansion this year, starting by acquiring a significant number of former Big Lots locations following Big Lots’ bankruptcy. The company’s goal is to open 75 new stores in 2025, a plan that was bolstered by the acquisition of 40 Big Lots leases towards the end of last month. This move comes at a time when many retail giants are opting for bankruptcy as a means to restructure or completely liquidate their operations, with companies like Bargain Hunt, Joann, Franchise Group, 99 Cents Only, Rite Aid, and Party City also facing similar challenges.
By taking over 40 Big Lots locations on February 27 from Gordon Brothers, a liquidation firm managing the sale of these stores, Ollie’s has now accumulated a total of 63 former Big Lots leases. Robert Helm, Ollie’s executive vice president and chief financial officer, expressed optimism about this opportunity, stating during the company’s quarterly earnings call that the closure of Big Lots stores has paved the way for strategic improvements, an expanded footprint, and increased returns for Ollie’s.
As Ollie’s transitions these acquired locations into operational stores, it expects to incur approximately $5 million in dark rent, which is the cost of leasing vacant properties and will be recorded as a preopening expense. Helm noted that the company will have to bear the burden of rent as soon as it takes over these stores, resulting in an average of about four months of dead rent compared to the usual four to five weeks for a typical store opening. Despite this, the advantage lies in the below-market rents and long-term leases associated with these locations, offering the potential for enhanced profitability in this segment of Ollie’s stores.
While Ollie’s has secured leases with long remaining terms for most of the former Big Lots locations it acquired, the company refrained from taking on more leases through bankruptcy due to certain limitations and restrictions in available spaces. Helm mentioned that approximately 600 Big Lots stores remain vacant following the bankruptcy auction process, presenting further opportunities for expansion.
In the last fiscal year, Ollie’s invested $120.6 million in capital expenditures, focusing on new store development, the completion of a distribution center in Princeton, Illinois, acquiring former 99 Cents Only and Big Lots locations, and store renovations. Looking ahead, the company anticipates investing between $83 million and $88 million in capital expenditures in the upcoming fiscal year, indicating a commitment to continued growth. Ollie’s added 50 new stores and closed three in the previous fiscal year, concluding with a total of 559 stores across 31 states.
