The Warehouse’s cuts could halt decline, say analysts
The Warehouse’s proposal to cut 180 jobs throughout 99 of its stores could steady the retailer’s decline in profitability but there were no guarantees, say analysts.
The latest round of job cuts will affect supervisors and team leaders.
First Union organiser Kate Davis said the retailer’s redundancy proposal was shocking and compared it to competitor Kmart, which was trading “incredibly well”.
“We do not want this to go ahead,” Davis said. “Other retail companies are thriving. It suggests to us the new company bosses just don’t know how to do business in New Zealand. It’s now a far cry from the red shed we all know and used to love.”
Hobson Wealth Partners head of investments Mark Fowler said job losses at The Warehouse were not uncommon but the scale of its latest proposal was greater than earlier rounds of layoffs.
“The Warehouse is undergoing a significant business transformation with regard to its business model and supporting structure, but also a material shift in the way the organisation behaves and in terms of its culture,” Fowler said. “The fact that most of these job reductions are in leadership roles sends a clear message to the market that they are executing on the transformation and that their current operating model is not working.”
Fowler said the country’s largest retailer would be hoping the layoffs steady its decline in profitability.
“The Warehouse has appointed external advisors to assist in this process and they’re hoping to address the steady erosion in both profitability and competitive position, but this is not their first attempt.”
The transformation programme could increase its profitability, he said.
“If executed well there is a potential upside to future trading profits, but given the lack of success from previous transformation projects there is still a high degree of earnings uncertainty,” Fowler said.
The Warehouse and Warehouse Stationery chief executive Pejman Okhovat said the retailer was moving to keep up with times.
“Retail is changing quickly and we need to evolve to be fit for the future,” Okhovat said. “Our store leadership structure has remained largely unchanged for 15 years, however in that time customer needs and expectations have evolved significantly. We want to make sure we have the right people in the right places to deliver a great experience for our customers.”
Okhovat said the redundancy proposal was developed by a group of working store managers. “At this stage, it’s a proposal only and we are seeking feedback from our teams before deciding on next steps.”
Six Warehouse executives were paid more than $1 million in the last financial year, up from just one staffer a year earlier.
Retail analyst Chris Wilkinson said The Warehouse was making changes to its operating model to ensure it remained competitive.
“The Warehouse’s competitors have similar lean models, so it is important they adopt similar strategies to maintain performance. The group is continuing to adapt to a challenging market strategically,” Wilkinson said. “In the longer term, this will help the businesses remain competitive, enable greater agility and support their goals for rewarding their employees financially as this is only possible when the company is profitable.”
Wilkinson said large retailers, globally, were removing “layers” of management to create flatter structures which enable better productivity.
The Warehouse workers have been given 10 days to respond to the retailer’s proposal but First Union is calling for this to be extended to August 7.