Retail margins fall to lowest levels
Smiths City chief executive Roy Campbell says competition had been tough in the home electronics, digital products and whiteware categories where margins had declined to levels ‘‘unseen before’’.
Smiths City has embraced a cautious approach in the lead up to pre-Christmas trading.
It has put off a plan announced in June to pay surplus cash of $5.7 million back to shareholders. The move will help reduce debt levels as the company rebrands its two Auckland Furniture City shops as Smiths outlets.
The change in tack comes against a background of expected lower turnover of 3 per cent for the six months ending October.
The board of directors had taken a prudent move as the company benchmarks itself against rivals Noel Leeming and Briscoes, Campbell said.
‘‘I wouldn’t say it was a rapid change in conditions but more the directors looking at market conditions and recognising it would be more prudent to retain cash reserves.’’
Campbell said he had been in touch with major shareholders including the Sir Ron Brierley-associated group holding 19 per cent.
‘‘They’ve been quite supportive. It’s about having the capability to trade well and what sort of investments we have to make. We can review things later.’’
Main rivals include Farmers, Noel Leeming, Beds R Us, Target Furniture, Harvey Norman, and Briscoes (which recently reported record revenues and several shop refurbishments).
‘‘Briscoes and Noel Leeming have already come out with their early Christmas promotions and there are some interesting online plays.
‘‘It will be hard fought Christmas retailing as always so we hope the new Zealand population is ready to spend.’’
Smiths City expects revenues for the six months to October 2017 to be 3 to 4 per cent down on the $113.9m previously forecast.
Results were encouraging from the new store in Hastings, and the recently-rebranded store in Whangarei where trading had been ‘‘fantastic’’ Campbell said.
Challenges had come from imposition of lending restrictions on real estate early this year, significant reductions in residential home sales, and uncertainty in the lead up to the election, leading to reduced spending.
‘‘Furniture and appliance retailers have responded with aggressive price competition, which has lifted retail sales and dealt with overstocking at the expense of profit.’’
The home furnishing category maintained more acceptable margins.
‘‘In the face of these challenges, it is appropriate the company maintains a more conservative level of gearing. The Smiths City board will review the position in 2018.’’
‘‘Hoping for a market upturn or an easing in competition is not an option and we believe continuing to reconfigure the business to achieve these goals is essential.’’
‘‘Our new Hastings store, the first to roll out the new ‘live better’ brand, has carved out a strong position in the region since it opened in March of this year.’’
After rebranding the former Furniture City store in Whangarei to the Smiths City ‘‘live better’’ brand, its weekly sales were 26 per cent ahead compared with the same period before the rebrand.
Smiths City operates 17 stores in the South Island and 16 in the North Island.