Retailers look for tummy ticklers

By Peter V O'Brien

Friday 12th March 2004

Listed retailers have had another year of sharemarket under-performance when compared with market indices.

Jeweller Michael Hill International was the only retailer to get anywhere near the 19.7% increase in the NZSX40 capital index since March last year.

Share-price figures for the eight listed retailers are in the table.

The NZSX40 capital index was used for comparative purposes, because the table was based on price (capital) changes and ignored dividend payments.

Previous examinations of the retail sector in The National Business Review have noted the lack of a common element among the companies, apart from selling goods to final consumers.

Competition for each listed organisation comes from non-listed companies, public and private, and sole traders.

It should also be noted that official statistics about retail trade may have little relationship to the listed companies' experience, particularly the changes in total national spending and seasonal adjustments.

Kirkcaldie & Stains managing director Richard Holden referred to those matters in his address to the annual meeting in February.

"Many of the statistics distributed used seasonally adjusted numbers that smooth out the peaks and troughs caused by consumer buying patterns for Christmas and the like.

"Kirkcaldie's uses only actual sales. Often the media then make comparisons with previous months rather than previous years, which is the way Kirkcaldie's prefers to track its progress.

"Generally comments apply to all retail including car yards and supermarkets areas in which Kirkcaldie & Stains does not operate."

Even so, current sales were below the comparable period of the previous year.

Holden also referred to a particular outcome of the current state of retailing; the phenomenon of higher dollar sales but a squeeze on profit from tighter margins.

"Some operators appear to be in constant sale mode and, for some, deep discounting has become a way of life."

The other listed retailers reported pressure on margins over the past year, with consequent effects on profitability.

Additional pressure went on clothing retailer Hallenstein Glasson, appliance and computer specialist Pacific Retail Group and general retailer The Warehouse Group from expansion overseas.

Things could come right for the three companies, although Hallenstein Glasson abandoned its Hallenstein menswear stores in Australia, deciding to concentrate on the Glasson womenswear chain.

The Warehouse's Australian woes have been well-publicised. They will take considerable effort, time and probably money to overcome, assuming a successful outcome is possible.

Pacific Retail acquired UK appliance retailer Powerhouse from receivership last year and said time was needed to re-establish it. Operating losses were anticipated in the medium term, according to Pacific Retail's report for the six months ended September.

Powerhouse was expected to become "a very valuable member of the PRG family, opening up new opportunities for the New Zealand businesses and contributing strongly to group profitability."

That was the story at the end of November. A Pacific Retail "update" in January said Powerhouse failed to meet its targeted sales volumes over the December-January period.

"It is now clear it will take longer than originally expected to restructure the business and achieve profitability.

"However, positive progress is being made, although trading losses for the year to March 31, 2004, will be in excess of what had been targeted."

The rest of Pacific Retail's businesses were apparently doing well but the Powerhouse comments had a familiar sound, similar confidence having come from other companies in the past about overseas expansion.

Powerhouse could come right and allow Pacific Retail to join Michael Hill as a successful overseas-adventuring retailer, although the references to missed targets suggested unforeseen problems.

They could be internal to Powerhouse or related to outside pressure, including competitors' reaction.

Few companies anywhere are likely to roll over for tummy-tickling from New Zealanders coming into their territories. The list of successful tummy-ticklers over the years and around the world is short, despite insular celebration of the few.

Restaurant Brands is a fast-food operator, a business which is up there with supermarkets for intense competition and pressure on margins. The company has forecast a profit downturn for the year ended February. It will report on March 31.

Postie Plus was listed on September 2, after the public issue of 15 million shares at $1 each. The company owns the Rendells womenswear retail chain of seven stores, becoming 17 after taking over 10 Gardner Fashion outlets between March and September, the 10 to be known as "Rendells Ladieswear Fashion" stores. Postie Plus also has the Arbuckles' manchester chain and other retail interests.

The retail sector's stocks could have merit for recovery, but growth seems limited in an industry which is "mature" in most of its sections.

Michael Hill has growth merit, particularly when its Canadian operations reach critical mass. Postie Plus seems to be performing well through acquisitions, the benefits of which should appear in future years.

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