Why the Arthur Barnett purchase is a really good move

  • Opinion
  • May 19, 2015
  • Paul Keane
Why the Arthur Barnett purchase is a really good move

Last week, it was announced that the Arthur Barnett department store, in Dunedin, was being acquired by the owners of the H & J Smith Group. This passed unnoticed in most news items. So was this news? Yes, most definitely.

It also came hot on the heels of the latest retail sales figures. Likewise, was this important information? Absolutely. For the past few months, we get nothing on our news other than the burgeoning house prices in Auckland and the impact on homeowners etc. As we have said before, there is more to life than Auckland property prices.

Retail is a significant part of NZ's economy

The retail industry in New Zealand accounts for 340,000 jobs nationally. The industry is one of the most important to the NZ economy. Through this industry, there are not only jobs created but new wealth for property investors, importers of product (merchandise), distribution facilitators (product needs to be dispatched); transport operators; the list goes on. Therefore, the retail sales results announced last week were truly outstanding. 

Rising sales across the board

Sales rose across the board and most store types saw solid growth. Department stores and anyone selling home products – furniture, appliances, hardware – will have been very pleased. Strong lifts in accommodation and food & beverage suggest that it’s been a great summer for tourism.

Fashion toughing it out

Fashion retailing has had a rough time of it in the last few years. These stores have struggled with online competition and downwards pressure on prices. In the March quarter, the actual volume of product sold was up 4.1%, but prices fell, meaning that sales were up just 3.0%. That’s still a good result compared to the last year or two, but stores are really working hard for those sales. It also follows a sales increase of just 0.6% in the more important December quarter.

How retail is fairing in the regions

The plot thickens when you take a regional lens. A large part of the retail growth is happening in Auckland. Most of the growth that remains is happening in Canterbury. For retailers in other parts of the country, chances are they’re looking at sales and wondering why they’re so flat. Retail sales increased by $2.8 billion in the year to March 2015 – 5.1% growth, and worth crowing about. But $1.5 billion was in Auckland, and $800 million in Canterbury. For other regions, all they can do is take comfort in the economic outlook seeming fairly stable, hope for some small amount of growth, and do the best they can to manage costs.

More people, more tax, better services

It’s incredibly important that as a nation we don’t get wound up about the number of people arriving in NZ annually, most of whom are moving to Auckland, and lose sight of the benefits that such new numbers bring. The people who arrive need housing of course, but they also need to be fed (supermarkets); they also need to buy clothes (apparel stores); they need furniture (appliance and furniture outlets); education (more schools); medical services (doctors, nurses and facilities), leisure activities (games, bars, restaurants, entertainment), on and on the list goes.

The opportunities through new numbers of people for the retail industry and others that hang off it are huge. Are these not the benefits of our national population growing in numbers? Will this not have immense benefits for our economy? More people, more tax, better services!

It really is a no brainer. This country is better off with 5 million people than 4.5. Retail growth is what the country needs for all the above reasons. it was no surprise to us, therefore, to see the acquisition of Arthur Barnett. 

The history of Arthur Barnett

This department store business has a long history in NZ retailing. It’s a “southern identity”, born and bred from good South Island roots. Ventures north were never successful, and regrettably, despite its owners making every effort, it never really made it in Dunedin in our modern retailing times. Why was that? A department store trading out of a single location simply does not have the infrastructure. Kirkcaldie and Stains in Wellington falls into the same boat.

Will H & J Smith succeed?

So will H & J Smith make a difference? We think this is a really good purchase. The Arthur Barnett name may change, but the strength of the H & J Smith brand in the deep south, together with its family culture and a really good understanding of retail in the South Island, will make a huge difference to the Arthur Barnett offering. It will also help the much maligned Meridian Mall in Dunedin that has some quality speciality retailers but demands a strong anchor, something Arthur Barnett could not quite give.

It will also rekindle some new love from local consumers who, while faithful to Arthur Barnett, will be overjoyed at the opportunity to support a strong South Island identity. Consumers should return in large numbers to the new brand.

What it comes back to is retailing. Good product, knowing what your customer wants and providing quality service. The retailing industry, through the latest results, is in very good heart. May it continue to prosper. The Arthur Barnett acquisition will just be another milestone in this incredibly fascinating industry.

 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.

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