30 May 2024

The Red Sheds, in the red

From The Detail, 5:00 am on 30 May 2024

In today's complicated retail environment, The Warehouse needs more than its history as an iconic Kiwi brand 

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Photo: 123rf.com

News of another New Zealand retail giant in trouble comes at a time when the industry is facing what one expert calls its most dynamic phase in decades. 

Smith & Caughey's yesterday announced a proposal to close after 144 years of trading. The closure would result in close to 250 job losses, and follows a 40 percent drop in in-store revenue in the past five years.

 "We're seeing retailers that have been around for generations closing and these curveballs that have been thrown, certainly since Covid, have been things that none of us have ever experienced before," says Chris Wilkinson, managing director of the consultancy First Retail Group.

Meanwhile, at the other end of the retail spectrum, whoever takes over leadership of The Warehouse Group is faced with a company that has taken drastic steps to get back on track.

After the sudden departure of chief executive Nick Grayston, the international search for a new chief executive is likely to take months. 

The news on the afternoon of 20 May that he was leaving, effective immediately, followed an earnings downgrade, a $23 million half-year loss, a slump in its share price and asset sales. 

NBR co-editor Calida Stuart-Menteath called time on Grayston weeks before that in her weekly editorial Last Word. 

"We concluded that Nick Grayston had been there eight years and hadn't managed to do what he said he was going to do," she says.

The retailer has gone from being a pioneer in its day, opening up consumer and households goods to low and middle income Kiwis at prices not seen before, to one struggling against competitors such as Australian-owned K-Mart.

Stuart-Menteath details the Red Sheds' period of growth through the 80s and 90s, and its listing on the stock exchange in 1994. In 2000, sales exceeded $1 billion and it was in the top 10 largest listed companies in New Zealand.

A buying spree in the past decade under the previous chief executive saw The Warehouse expand into a group of retail brands, some of which became top performers. Others flopped. Among them was sports chain Torpedo 7. It was bought for tens of millions of dollars and recently sold for just one dollar.

The Warehouse Group has since refocused to three key brands - the Red Sheds, Warehouse Stationery and Noel Leeming.

Wilkinson says The Warehouse was a forerunner to big format retail and shoppers went there not only for the bargain but because the shopping experience was a novelty.

"People were drawn to these new and differentiated environments, they were drawn to the concept of saving money by shopping in a very basic environment, having lots of products, in many cases they were products that people hadn't seen before.

"That was really the start of experiential retail, which is kind of what is driving consumers' behaviour now."

But he says consumer behaviour over the past decade has changed, with consumers spending less on products and more on experiences and entertainment. 

"That trend has been going for quite a while now - well over a decade - as our successive audience, so younger consumers, are in many ways less materialistic.

"So retailers are having to respond to this change in consumer needs and behaviours in different ways."

And that's a challenge that The Warehouse Group must contend with.

"For the very big box models without any strong differentiation, yes, it will be challenging going forward. 

"The Warehouse now really needs to think about the categories that it can own and succeed well in.

"Is that gardening, is that going to be home furnishing, clothing it does well in, grocery? Developing the right types of environments for these categories to succeed is going to be really important.

"So The Warehouse does have quite a challenging road ahead, but it's not insurmountable."

For Stuart-Menteath, that means a focus on both their website and their brick-and-mortars - and she thinks that needs some work.  

"It's going to be a hybrid model from now on, I think, and that's another reason why retailers like The Warehouse, like Briscoes, really need to have a website that's usable for consumers, not really tricky to navigate, easy to use. 

"People want to go in store but they also want to go online.

"Now the idea is they've got rid of TheMarket.com and they will focus on getting The Warehouse online platform up to speed. 

"But it seems to make more sense that rather than just getting The Warehouse up to speed, they should have a whole overarching website for its three core brands where people could go and purchase their electronics from Noel Leeming, their bed duvet covers from The Warehouse and their stationery from Warehouse Stationery, all on one platform." 

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