29 May 2024

Smith & Caughey's knew for two years current model wasn't working

5:10 pm on 29 May 2024

Smith & Caughey's has known for two years that its stores were running into losses and its operating model would not work, chairperson Tony Caughey says.

The department store, which has been in business for about 144 years, told its staff about the proposal to close on Wednesday.

"Two years ago we knew that our current model or arrangement wasn't going to work," Caughey told Checkpoint.

"We've been working for a couple of years to try and find a different model that would work for us and I suppose we stopped doing that when the board voted last week to go down this track."

There was not one reason that led to its impending closure.

"It's a culmination of what we might call six elements of a perfect storm. And it's really happened in the last five years," Caughey said.

Since 2019, he said several new shopping malls had opened, which increased competition.

There was more choice and competition with the likes of Farmers, Sephora, Mecca and David Jones opening up.

Then there was the Covid-19 pandemic, with people not working out of their offices, but from home.

"The whole disruption to Queen St and round about, with the central city rail loop making the central city an unfriendly place to visit if you're driving a car," he said.

"The CBD needs to be a more friendly place to visit than it is."

Consumer confidence was low, but that would pass, he said. "We've operated through depressions in the past."

He said consumers' money was going to the banks, and not to department stores.

"There's a shrinking amount of dollars to go around."

But internationally too, department stores were going through similar stages, he said.

"We look at Macy's last month announced the closure of 150 of their stores, including a downtown San Francisco flagship store. You look here at H&J Smith, at Kirkcaldie & Stains. It's not unique to us, it's part of a very changing retail landscape."

Smith and Caughey's on Queen St, Auckland.

Smith and Caughey's on Queen St, Auckland. Photo: Supplied / Smith and Caughey's

In the past five years, Smith & Caughey's stores in Queen St and Newmarket were down about 40 percent in revenue. But despite an increase in online shopping and the train station opening, the business could not find a way to operate successfully, he said.

"We've been recording fairly significant losses for the last couple of years and there's a time you just got to draw a line.

"We've done a huge amount of work looking at various options, anything that we could think of, we've employed professional advisors to check our numbers, to give us their views on what's happening overseas that we could put in here. They looked at about a dozen in detail, at the end of the day, we just couldn't find one that worked for us."

The stores would cease operation in early 2025, he said. It would affect about 240 staff.

"We spoke to the staff first, our feelings are very much with the staff and how it affects them. This was a surprise to a lot of them."

Staff have been five weeks to offer solutions and feedback during the consultation period.

A closed sign on Smith and Caughey's on Queen St, Auckland, on the day it announced its proposal to shut its stores.

A closed sign on Smith and Caughey's on Queen St, Auckland, on the day it announced its proposal to shut its stores. Photo: RNZ / Marika Khabazi

Auckland mayor mulls converting building into apartments

Auckland mayor Wayne Brown said the department store had held on for as long as it could.

"I've admired and looked at that firm for a long time, and wondered how long they could keep beating the international trends," he said.

"Like a lot of department stores around the world, they're a victim of Amazon really, and that sort of thinking, the online purchasers are killing off retail around the world

"And I don't think people that buy that stuff realise that they're missing out on that wonderful experience of retail, delivered better in Auckland at Smith & Caughey's than anywhere else I can think."

Brown said the building could be used as apartments, but admitted that was getting too far ahead.

"It's yet another reason why [sic] my pressure on the minister of building to get on and change the building rules to enable conversion of under-utilised offices, and now soon to be an under-utilised department store, into apartments.

"That has to happen soon, because that'll be the only use for it afterwards, which is tragic but we've got to have something happening there.

"That's probably getting ahead of myself, I'd love to see it miraculously survive to what it is at the moment."

Auckland Chamber of Commerce chief executive Simon Bridges said the impact of the closure would be felt around the country, not just the city.

It was a sign of the tough times the retail sector was in, he said.

"Iconic is a word that's over used but there's not really many other words that sum up what we had at Smith & Caughey's.

"It was a signature New Zealand, Auckland, premium department store. There's no way of sugar-coating how this will be felt by other retailers.

"Such a big space to be filled on our literal Queen St.''

While it was hard to pinpoint one factor he said there were obvious contributors including a difficult transport system, and widespread roadworks, contributing to the decision.

"We need a city and city authority that makes the city inviting."

'A big loss' for Auckland

Heart of the City chief executive Viv Beck said the situation was devastating.

"We're very conscious that, whilst we have positive milestones ahead like the CRL, that's still about two years away, and this will be a blow to the city centre if it goes ahead," she said.

She said the store meant a lot to Aucklanders.

"Someone said to me recently that they love to take kids through because it helps them to dream about possibilities, going to a store like that," Beck said.

"This is really a big loss."

Newmarket Business Association chief executive Mark Knoff-Thomas said it would be missed.

"This is a severe loss for Newmarket."

"Smith and Caughey's is holding a grand position at the bottom of Remuera Road on Broadway, and has done so for a very long period of time," he said.

"Very much part of our community, the people who work there, the management, they're very much vital members of our community."

Sign of the times

On the streets of the central city, one Aucklander said the news was shocking.

"I'm really surprised, it's probably a reflection of retail success in Auckland at the moment, or in New Zealand," she said.

"If well-established places like Smith & Caughey's are struggling to keep afloat, then that sort of speaks to the wider state of the economy," said another.

One man said it was an all too familiar sight in the central city.

"It's happening all over Queen St pretty much," he said.

"You see some empty shops, and that's just the sign of the times, I guess."