Friday 23rd September 2016 |
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Consumers wanting retailers to “show me you know me” is at the heart of a technology push under a new three-year strategy revealed today by Warehouse Group chief executive Nick Grayston, as the country’s largest listed retailer lifted annual earnings 12 percent.
The Auckland-based company reported adjusted profit rose to $64.1 million in the year ended July 31 from $57.1 million a year earlier following tight cost control and a turnaround in the profitability of Torpedo7. Revenue increased 5.6 percent to $2.92 billion with sales growth across all of the retailer’s brands, which Grayston said was a good performance in light of currency headwinds and a warmer winter faced in the second half.
The board has approved Grayston’s new strategy which is two-fold: introducing new technology and utilising the group’s scale by integrating data on customers it gathers and introducing personalised offers; and lifting profitability by removing complexity and reducing the cost of goods sold by reshaping some bigger Red Shed store space for other brands, reducing sourcing reliance on China by turning to supply from India and Bangladesh and other emerging countries such as Laos and Myanmar, and lowering the length of time it holds stock in inventory.
Warehouse has spent hundreds of millions of dollars overhauling its outlets and buying new businesses to drive future growth in the past few years under the leadership of former CEO Mark Powell who Grayston replaced in December. That had followed a period of underinvestment and sales decline in the late 2000s.
Grayston said the new strategy will need to be self-funding through driving better profits out of the existing business as capital expenditure this financial year will be limited to the rate of depreciation or similar to last year’s retail capital spend of around $64 million.
Craigs investment analyst Mohandeep Singh said the balance sheet won’t handle any big increase in debt after going through that massive phase of investment.
“It’s really at the inflexion point now the performance has stabilised and they have stemmed the bleeding over the last three to four years so they’re doing the right thing. The real risk now is around execution,” he said. “There’s very nice strategy words around what they can do but nothing really tangible around how they’re going to do that.”
The retailer was a long way from “job done” and needed to build on the improved performance it had delivered, Grayston said. He identified “internal execution risk around our ability to deliver the changes we have identified in our strategy”, as one of the major challenges the retailer faces this financial year.
There has been a paradigm shift in retailing with consumers now holding all the information and the power which meant the business had to become more flexible and based on demand pull rather than push, he said.
Management visited Silicon Valley last week to look at the latest big data technologies available but no decision has been made yet on what cloud-based technology it will go with, Grayston said. Big data was a key focus as the group needed to move beyond just knowing their customers to “how to create rich contact and personalised data.”
Total group online sales have now hit $181 million a year, up 22 per cent on the previous year and there’s growing customer interest in “click and collect’ where they order online and pick up in-store. A platform upgrade is underway to improve mobile options and speed up load times.
The group's best performer in the 2016 financial year was Noel Leeming which lifted profit 88 percent to $12.1 million on a 13 percent increase in sales to $752.1 million, after benefiting from the collapse of consumer electronics chain Dick Smith.
Torpedo7 also boosted sales 13 percent to $148.7 million for a profit of $3.4 million building on the breakeven result it achieved a year earlier and Grayston said the strategy includes accelerating growth of Torpedo7 stores.
The financial services arm Warehouse Money, launched last year, reported an operating loss of $3.4 million in line with expectations, compared to a $1.8 million loss the previous year. The financial services business offers two credit card products and five insurance products.
Chief financial officer Mark Yeoman said the financial services business aimed to breakeven by mid-2018 without any additional external capital injections following the $115 million in equity it raised last year. It has established a securitisation funding arrangement.
He wouldn’t supply customer numbers but finance receivables have risen to $73.6 million from $14.2 million a year ago after buying Westpac’s share in its previous financial services joint venture that ran for 14 years.
Yeoman said the point of the unit was to support customers for its retail brands rather than become a significant financial services player in its own right.
For example, Warehouse is currently getting consumer feedback on introducing a monthly subscription for cellphone customers that would cover all their costs including a handset updated annually that could be funded through the financial services arm.
The outlook remains challenging with increasing competition including rapid growth in e-commerce. Some 45 percent of New Zealand’s e-commerce is done through international players and their market share was growing faster than domestic retailers, Grayston said. In apparel there were also new brands emerging such as Zara and H&M in Auckland.
“That’s why it’s important to continue to innovate and use our advantage as a trusted resource in New Zealand to build e-commerce,” he said.
FY17 earnings will be significantly influenced by Christmas trading as usual so Warehouse won’t provide specific earnings guidance until the end of the first half. A sales update the first quarter will be released on Nov. 11.
Warehouse shares rose 1.7 percent in today's trading to $2.95.
BusinessDesk.co.nz
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