The Reject Shop's share price has continued to plunge, as market analysts suggest the discount retailer needs to start closing stores and question whether it can compete with supermarkets and department stores on everyday household items. 

The stock has now fallen more than 40 per cent in three days of trading, tumbling from $8 to $4.16 per share, after the company revealed that shoppers were turning away from its stores. 

Same-store sales fell about 4 per cent in the past six months, the company said on Friday, which it expected would push it to a $5 million loss in the second half and a $12.5 million profit in the full-year, down from $17.1 million in 2015-16. The Reject Shop also warned it was unlikely to pay a final dividend this year. 

Shares fell 33.2 per cent on Friday and had slipped another 6.8 per cent by 2pm on Monday, wiping $93.3 million from the company's market value.

Managing director Ross Sudano said the poor performance was due to a tough "external environment" and missteps with its merchandising strategy that had seen it focus too heavily on variety products, like decorations and toys, at the expense of everyday household items like toiletries. 

Morgan Stanley's John Stavliotis said he had previously been hopeful about The Reject Shop's strategy of focusing on cut-price everyday products, but it was clear that had not been successful. 

"The failure raises concerns of TRS's ability to effectively compete on price and offering on everyday products," Mr Stavliotis wrote in a note to clients. 

The Reject Shop has 350 stores across Australia and has a long-term target of opening 400, but UBS analyst Jordan Rogers said the company should review the size of its network. 

"While the company is opening new stores, we believe there is potential for another 30+ store closures over the medium-term," Mr Rogers said. 

He said it was hard to separate the impact of external issues, like the challenging competitive environment, from the company's own merchandising mistakes. 

Goldman Sachs analyst Andrea Chong said that while The Reject Shop was taking action to cut costs, she remained sceptical of seeing top-line sales growth in 2018 because of the competitive environment in which supermarkets and discount department stores were aggressively dropping prices.  

"We await a pick-up in consumer sentiment to take a more positive view on the shares," she said. 

Goldman Sachs cut its 12-month price target from $8.60 to $5.50.