DELIVERING BETTER VALUE, EVERY DAY
After three decades of consistent sales and bargains, The Warehouse took the plunge and introduced a new low-price strategy in an effort to stabilise the business model and win back the trust of once-loyal customers.
We’re not having a sale. The Challenge
The Warehouse has always been recognisable to Kiwis as a low-price general merchandise retailer. When the doors first opened in 1982, it broke the stranglehold of established retailers and made affordable products available to the average New Zealander. The longstanding tagline ‘Where everyone gets a bargain’ is deeply ingrained in the New Zealand psyche as well as being central to the company’s mission: ‘making the desirable affordable’. Thirty-five years on, this original mission burns as bright as ever internally, yet the definition of ‘value’ has changed in the eyes of consumers. In a post-global Financial Crisis (GFC) world, retailers around the globe are increasingly pricedriven, catering to increased pressure on resources by offering deeper discounts. Concurrently, the rapid rise of e-commerce means retailers now compete in a global market. By 2016, The Warehouse revenue had begun to flatten out, and it was looking to trend down in the future. The novelty of The Warehouse bargain hunt had worn off, and the continuous sales had decreased the value of them in the eyes of the modern shopper. To meet these new expectations, The Warehouse stripped its marketing approach back to basics.
The Response
Leaving behind the company’s longstanding approach of prices fluctuating wildly on a weekly basis, The Warehouse introduced an ‘Every Day Low Price’ (EDLP) policy. The new method of stable, predictable, low prices did away with a large number of the retailer’s product lines and the ‘more is more’ philosophy. The Warehouse reset its pricing and product strategy, away from deeper discounts to fend off the competition and towards stabilising prices, sourcing more desirable products and simplifying its range. The Warehouse now offers customers the chance to shop a better curated and less cluttered range. The more desirable product range was the secret to winning back the customers it had lost to mistrust over volatile pricing. Helped by a coordinated marketing effort of in-store advertising, TVCS, radio ads, mailers, digital, social and press, The Warehouse introduced the shift in retail strategy to Kiwis in September 2017. It could have all gone wrong and the international model didn’t guarantee success. When US department store chain J.C. Penney switched to a similar EDLP pricing strategy, store sales fell by 20 percent and the company value fell below 50 percent. In order to ensure the switch didn’t have the same effect on The Warehouse, marketing had to step up, and merchandise buyers and marketers had to work together. Before, in the old high/low pricing model, marketing materials had to be released within the promotional window. Switching the model means the marketing team works without the time sensitivity around pricing, and thinks in terms of seasons rather than weeks. The numbers of mailers, radio ads and TVCS have been reduced and re-angled to produce more memorable campaigns. Increasing the volume of weekly store transactions by reigniting confidence in The Warehouse offer became the key marketing objective.
The Result
After turning off the high/low discounts, the new EDLP approach has seen some strong results. The number of weekly transactions have increased, along with the number of units sold and the number of units per basket. Most importantly for a long-term brand like The Warehouse, customer satisfaction was maintained and brand attribute tracking shows consumers perceive The Warehouse as the place to get a bargain. For a business that was obsessing over daily sales and weekly promotional calendars, the adjustment to thinking longer term was not easy. But the EDLP policy is all about playing the long game. While week-on-week sales may suffer, overall the intention is to grow longer-term sales.