After tough few years, New Zealand’s largest listed retailer has reported an adjusted full-year profit of are $74.1 million. This represents a lift 25.6 percent on last year.
With The Warehouse Group’s group sales up by 2.6 percent to $3,071.4 million, group chief executive Nick Grayston confirms the excellent result is down to improved operational efficiencies.
“We’ve long articulated the twin strategies of fixing the retail fundamentals and investing in a digital future.”
Grayston says the Group has executed 175 different initiatives against its structured transformation programme: “One of the big benefits for us is that we’ve really built the muscle of how to execute.”
“It’s really been about executing and being able to uncover pockets of value.”
The efficiencies it’s introduced so far are “by no means” the end, Grayston says: “We’ve recognised about a third of the value of doing that.”
Some initiatives introduced mid-year have yet to deliver their full benefit, and there’s further big initiatives to come around store productivity and price optimisation.
The Warehouse Group introduced an everyday low price (EDLP) strategy in 2018. Kiwi shoppers are notoriously discount-driven, and the ‘everyday low price’ strategy presents itself as one solution to the downward spiral of competitive discounting.
Grayston says The Warehouse Group is overall very happy with the performance of EDLP, although he hasn’t ruled out the occasional discount promotion. He describes discounting in the broader retail industry as having become “an arms race”.
“We saw this in the US. Where do you go after 50 [percent] off? You go to 60, 70, and before you know it, you’re selling below cost. Or you artificially inflate the prices.”
Now that consumers can use technology to quickly and easily carry out comparison price checking as they shop, he says, artificially inflated pricing doesn’t work anymore.
“Customers are getting smarter and smarter, more and more educated, more able to check things, and so you look at the mass-market retailers that are succeeding in the US and it’s really Walmart and Target. That’s partially because they’ve made digital investments as well, but those are both EDLP retailers.”
“Customers are not stupid. They do value retailers that don’t try to pull the wool.”
In an environment where competition is intensifying, Grayston says, The Warehouse Group is under pressure to “be better”. With large-scale retailers like Costco and local homewares start-up Nido looming, Grayston says The Warehouse Group is in a better position to compete than it was three years ago.
“We’ve got a long way to go and the enemy is always speed. You’ll have seen in our investment presentation, the investment we’re making in our people and training, the future of work. We need to make sure that we’re hugely customer centric. We’ll only be able to do that with a change-able culture.”
Asked if there’s anything he’d like other retailers to know, Grayston references The Warehouse Group’s sustainability initiatives:
“The one thing that’s very personal to me but should be personal for everyone on the planet is, I’m massively proud of the fact that we took the company carbon neutral this year. Climate change is real, and it’s critical, and it’s incumbent upon companies that have the power to make change to help make sure that the earth is still around and a safe place for our children and our grandchildren.
“I’d urge them to redouble their efforts and we’re happy to help and supply any information we can.”
All four major trading brands have seen sales growth.
The Warehouse recorded sales of $1,705.7m, up 0.6 percent on last year. Its operating profit increased 19.1 percent to $85.1 million.
Warehouse Stationery has recovered from its systems integration and stock availability issues and returned to historical levels of performance to deliver a record retail gross profit of $112.8m. Retail sales were up 1.8 percent to $268.6m and gross operating profit improved 57.4 per ent to $16.7m.
Noel Leeming continued its upwards momentum with a record retail operating profit of $38.1m in FY19, with sales up 5.0 percent.
Torpedo7 Group increased its sales 5.6 per cent year on year and gross profit increased 1.2 per cent, however due to costs associated with the Torpedo7 store expansion programme, the business made an operating loss of $7.0m.
Group online sales were up 18 per cent, now 7.8 per cent of total Group sales.