Red shed strategy under siege: analyst

The Warehouse Group’s failure to respond to new competition contributed to the retailer posting a $58 million profit plunge, an industry analyst says.

The group, which owns The Warehouse, Warehouse Stationery, Noel Leeming and Torpedo7, has reported a $20.4m profit for the year to July 30, down from $78.3m last year.

First Retail managing director Chris Wilkinson said core The Warehouse stores had not differentiated themselves as competition ramped up.

‘‘Everyone is nipping at The Warehouse’s heels,’’ he said. ‘‘To be successful in retail you need to be different and unfortunately The Warehouse isn’t.’’

The retail chain had begun to reduce the number of product categories it sold, ‘‘but all of those sectors are under siege’’.

Wilkinson said The Warehouse’s ‘‘everyday low prices’’ strategy was a generic term that many businesses were using. ‘‘It’s like saying you have quality product. Everyone is expecting that now,’’ he said.

Group chief executive Nick Grayston was not concerned by the reduced profit.

‘‘The Warehouse has realised it has to change and have taken swift action to do so,’’ he said.

The Warehouse recently launched its own homewares range to compete directly with Kmart. However, Wilkinson said Kmart’s success had been its control over its own branded goods and The Warehouse needed to do the same.

‘‘The secret for The Warehouse may be to make their own product or source product that is not able to be purchased elsewhere.’’

Grayston said a core plan for the future was to consolidate product brands sold from 150 to 30.

‘‘We’ve invested quite a lot in terms of sourcing those direct. We’ve built our own design team; we’ve enhanced our sourcing capability,’’ he said.

The Warehouse’s digital strategy was also ramping up, with a former Alibaba executive recently hired to lead the online business.

‘‘We have invested in world-class global talent. We’re going to be building a payments platform that will enable us to deliver personalised pricing.

‘‘It’s not a direct reaction to Amazon. It’s more a reaction to the changing face of commerce.’’

Changes to the group’s business model led to a net loss of 143 non-store based jobs. Grayston said further job losses were unlikely.

‘‘I would never say it’s completely off the table. Modern business is continually restructuring but I don’t foresee at this stage major people restructuring.’’

The main reason for the group’s profit dive was the impairment of goodwill and fixed assets totalling $40m linked to the sale of its financial services arm Warehouse Money in July.

When the losses associated with the sale of Warehouse Money were taken into account, profit after tax was $59.2m, in line with expectations.

Operating profit for Noel Leeming was up 60 per cent and 10 per cent for Warehouse Stationery. But operating profit was down for the core The Warehouse stores by 5.4 per cent and down 21 per cent for Torpedo7 stores.

Apparel sales were strong for core The Warehouse stores but this was offset by weaker sales in some general merchandise categories.

Shareholders will be paid a final dividend of 6 cents a share, taking the total dividend for the year to 16c a share, fully imputed.