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Retail spending accelerates

  • Opinion
  • August 6, 2015
  • Warren Head
Retail spending accelerates
Illustration: Kerryn Smith

“What's more, the strength was unusually pervasive,” added Delbruck. “All 15 store-types experienced a lift in retail sales volumes, for the first time since 2006.”

This lift looks puzzling as we all know that for many households income is being pummeled by the spiral in housing costs and the siphoning effect of mortgage payments. Is this, however, being offset by costs falling in other part of the household budget?

Indeed so according to Delbruck. “Part of the reason for the strong growth in volumes was very low retail price inflation - adjusted for seasonal movements, retail prices fell 1 percent in the quarter (led by a 9.2 percent drop in fuel prices).”

Nominal spending has been rising at more than a 1 percent quarterly clip for the past year. This measure is accelerating, up 1.7 percent after a 1.4 percent rise in the December quarter

This means we now have the oddity of “turbo-charged growth”, but very low retail price inflation.

Indeed, relative to Westpac’s own expectations this was a modest upside surprise. “We were primed for the drop in retail prices but the value of spending was even stronger than we had expected,” Delbruck said.

Firm grip on stock costs

Double digit sales growth performance from Rebel Sport and a satisfactory performance from homeware in an April quarter underscored a successful start to 2015 for Briscoe Group.  At $119.8m sales were up 4.33 percent; after stripping out the sales made by two new Rebel Sport stores (Paraparaumu and Hornby) the growth rate is 3.42 percent.

The sporting goods and homeware segments achieved rising gross profit in markets that managing director Rod Duke said “remain highly competitive with relentless promotional activity.”

Briscoe Group has got its inventory management in tight focus. The company is always looking for ways to improve effectiveness of marketing strategies, and the quality and breadth of product ranges.

New stock receipting technology brought into all stores in 2014 is understood to be having a positive impact. The introduction of scanning technology to receipt stock was a major project for the entire business and all stores were ‘live’ by the end of September. Briscoe Group has seen a significant improvement in the efficiency of the flow of stock from the back door to the sales floor (and made a huge difference in the crucial stock build period before Christmas).

Extensive analysis and modeling simulations of various price-cost-quantity scenarios was also carried out “to assist us to optimise margin opportunities and manage challenges as they arise.”

Briscoe Group also benefited from foreign exchange cover taken out last year when the New Zealand dollar was significantly stronger against the US dollar than it has been this year.

Is training the key?

By now, hardly a retailer of any size would be unaware of Briscoe Group’s outperformance. Once product lands there is a sure-footed strategy, which is worth a moment to outline.

The merchandise team work tirelessly to ensure the right product is in the right place at the right time and stock availability has improved. The marketing team has kept the promotional messages fresh, relevant, compelling and most importantly in the right media to serve its customer base.

To improve the quality of service provided instore, Briscoe Group invests in training and staff development. It has said: “Business managers, retail managers, assistant retail managers as well as stockroom, administration and sales floor staff have all benefited from the programmes we have delivered, which focus on a wide spectrum of topics including leadership, delegation, inventory management, customer service, product knowledge and health and safety.”

This model is producing higher average sale value, transaction numbers and gross profit margin while reducing the overall cost of doing business as a ratio to sales.

The other factor is the shaping of the store network. Rebel Sports had 32 stores four years ago and today that number is little changed at 33. Its total retail area is 52,933m² (was 53,204m²).

 It’s evident that Briscoe Group is upsizing its homeware stores and is getting the benefit of scale. Four years ago Briscoe Group had 54 homeware stores taking up 93,964m² of retail space; today there are 46 homeware stores occupying 95,787m². By my calculation the average floor size has expanded from 1740m² to 2082m². 

 Warehouse getting it all to click

In briefing the financial community on The Warehouse’s new fixed rate bond issue, chief executive Mark Powell underscored the significantly different nature of the business to a couple of years ago, following a number of acquisitions totaling over $100m.

The group is now a super-retailer employing 12,000 people and generating $2.7 billion of revenue. It comprises 92 The Warehouse stores, 78 Noel Leeming stores, 65 Warehouse Stationery stores, 11 Torpedo7 stores, two Number One Fitness stores in New Zealand, and several online businesses.

The expansion phase is now over and the consolidation phase has begun. Now, the focus is on getting it all to click. The emerging evidence from the latest quarter is that it is starting to do so.

A lot of the business already does. The Warehouse is now clearly a ‘bricks and clicks’ retailer with 20 percent of revenue streaming off online transactions. 

The Red Sheds have extended digital/multi-channel capability with ‘click and collect’ (order online, pick up in-store), and ‘endless aisles’ (extended range available in store through online) is also now offered in all stores nationwide. Revenues from digital channels continue to grow at higher rates than the market.

The latest quarterly sales data confirming positive sales results across all our retail businesses indicates a much improved performance on a challenging first half, with solid sales growth and improved gross margin. Revenues from digital channels continue to grow at higher rates than the market. Click and collect is running at 20 percent of total online sales. Obviously, it’s preferable if customers also pick up at stores (where they may spot another good buy!) and that also removes the delivery cost and any related frustrations for the customer.

The trading conditions that affected the first half have cycled out of the latest quarter. In 1H15 The Warehouse was cycling into the digital switch for TV (which impacted Noel Leeming); a cold spring and late start to summer trading (that hurt Red Sheds) and the costs of integrating acquisitions, such as the cost of rebranding (bye bye to the well-known R&R Sports brand), and the costs behind store refits and refurbs.

The group wants its new financial services business to be a leading player within five years.

To help achieve this the group picked up Diners Club New Zealand for $3m and at that time raised $115m of extra equity and made available a share purchase plan for $15m.

In going to the market for $100m to $125m of bond capital, The Warehouse said financial services were being kept entirely separate from the group’s debt funding.

This story was originally published in NZ Retail magazine issue 738, June / July 2015.

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