Why would you buy into a retail group with declining sales and a significant profit decline? It does happen and in some such instances the company is turned around, whilst in others the decline cannot be rectified. The purchase of a significant shareholding in The Warehouse by James Pascoe Group is absolutely intriguing, and is a good example of making a purchase at the right time. Or is it?
Take a look at this article by the NZ Herald.
This would not have been a random purchase. Woolworths Australia had held a parcel of shares in The Warehouse for a number of years. The ploy had been to protect its market share interests, given that at the time The Warehouse was gearing up to get into the supermarket business.
We will recall that The Warehouse had created large format “The Warehouse Extra” stores, to handle potential increased sales volumes driven by the new supermarket range. Foodstuffs also took a shareholding in the company.
Over time, The Warehouse’s entry into food proved to be unsuccessful, due in the main to having no proven infrastructure to provide the service. Competition from both Foodstuffs and Progressive proved to be just too tough. As a result, Woolworths decided that they would dispose of their shareholding, and sold the lot to James Pascoe Group. That’s where the intrigue starts!!
The number of Retail brands owned between both The Warehouse Group and James Pascoe is significant. They include, The Warehouse, Warehouse Stationery, Noel Leeming, Torpedo 7, Pascoes, Stewart Dawson’s, Prouds, Stevens, Goldmark, Angus & Coote and Whitcoulls. So what does this all mean?
It’s about Kiwi ownership. The synergies between owners of both are similar. Both The Warehouse Group and the James Pascoe Group are owned by traditional Kiwi families, with like goals. They are true retailers, have been involved in the industry for a long time and sell few if any assets.
Collectively they control a significant share of the NZ consumer spend. They are both adventurous in their acquisitions and are loyal to the Kiwi Brand. The move by James Pascoes in acquiring Whitcoulls and protecting that brand in a difficult retail environment, and the acquisition by The Warehouse in acquiring Noel Leeming, demonstrate the respective commitments.
Where to from here?
James Pascoe have declared they have no interest in a takeover bid for The Warehouse. However, a joint venture of some sort would not be out of the question, although The Warehouse is a publicly listed company whilst James Pascoe Group are private.
More importantly, the buying power from the JV would be very significant, and would potentially introduce more acquisitions? It’s not really a matter of “watching this space” but rather when will the next acquisition or merger occur.
It’s also a little ironic that at the same time we see an Australian retailer retreat to Australia, having decided they cannot cut the mustard here. It was apparent that FCO (Fishing Camping Outdoors), with about 14 stores nationwide, were finding the NZ environment difficult. However to cut and run quickly was a bit of a surprise.
It comes on the heels of the closure of the Good Guys stores, who found the heat similar! The NZ market is a tough retail environment, protecting that patch is however part of just how tough it is!
Paul Keane is a registered property professional and has vast experience in New Zealand’s commercial property industries. He provides retail and property consultancy including development management to many New Zealand property owners, developers and city councils. This article was originally published on RCG's blog.