Stable prices help Warehouse result
New Zealand’s biggest retail company, The Warehouse Group, says its shift away from continual sales and discounts is the way the retail world is going, and shoppers are responding well.
The company, which is fending off increased competition from Kmart, has posted a profit of $22.9 million after tax for the year to July 29, which was up 12 per cent.
But the group’s preferred measure, its adjusted net profit, fell 13 per cent to $59m, affected by a $50m write-down of its financial business last year and a $25.6m write-down on Torpedo7 this year.
Group chief executive Nick Grayston said the company had seen tangible improvements in the second half after implementing its ‘‘everyday low price’’ strategy.
‘‘Our customers told us because we changed our prices so often they were never sure that they were correct ... We wanted to take that uncertainty out of it.’’
Moving away from constant markdowns had been adopted by key rival Kmart several years ago in Australia and Target in the United States, ‘‘and it was a pretty painful change for both those businesses’’.
But Grayston said Kmart’s increasing rollout in New Zealand was something he didn’t worry about too much.
‘‘We have a property portfolio that would be very hard for them to fully replicate . . . It will be very hard for Kmart to get into a lot of those locations.’’
Chairwoman Joan Withers said the company was expecting a modest improvement in profit next year, although specific guidance would not be made until the end of the second quarter.
However, some challenges did lie ahead, including increases in labour costs, fuel costs and currency movements, which could have a considerable effect on its buying power.
During the year, The Warehouse Group failed to increase its overall revenue much, up 0.5 per cent to $2.99 billion.
The group’s biggest contributor was its core The Warehouse stores, which continued to flail, down 2.5 per cent to $1.7b.
Its Warehouse Stationery chain also underperformed, with sales down 5.2 per cent, but there had been a fundamental change in the stationery business, Grayston said.
‘‘There’s a move away from paper-based products . . . In addition, a lot of the computing product is moving much more to mobile and so we’ve started that pivot.’’
Its Noel Leeming electrical stores were the standout, with an 8.6 per cent increase in sales. Group online sales also grew 6.6 per cent.
Grayston said in future the group would be more focused on making its mobile sales work seamlessly with its physical stores.
But bricks-and-mortar stores were far from dead, he said. Overseas, Amazon had bought US grocery chain Whole Foods Market, and was rolling out 3000 Amazon Go self-serve stores, while China’s Alibaba was opening 10,000 Hema Fresh cashless supermarkets.
The Warehouse Group was not anticipating closing any stores ‘‘but we want to make sure ... that we have flexibility with that store footprint’’, Grayston said.
Its online outdoor goods brand Torpedo7 ended the year with a $1.4m operating loss, which chief operating officer Mark Yeoman said reflected a need for more retail discipline and greater scale.
As a result, it was rolling out physical Torpedo7 stores to complement the existing business.
The Warehouse cut about 180 jobs in June and flagged that next year it would be spending $20m to $30m on ‘‘transformation costs’’, including restructuring.
Asked whether there would be more job cuts, Grayston said: ‘‘It would be wrong to draw the conclusion that there’s going to be huge redundancies. Equally I wouldn’t tell you that there will be none.
‘‘It’s important that we retain the nimbleness to be able to redeploy our human capital.’’
The results included news that about 6000 staff in the group will receive a bonus or incentive payout. The bonuses will go to waged staff, senior leaders and offshore team members.