Warehouse Group CEO on company's move to agile, how online spending accelerated store closures

The Warehouse Group says it was left with no other option than to cull 1000-plus staff as it rejigs its operating model and downsizes its store footprint.

On Monday morning, the country's largest listed retail company told the NZX that it planned to shut six stores, in addition to three closures it announced earlier, and lay off up to 130 staff from its Auckland head office.

The company will soon begin consultation with around 950 staff working in its Noel Leeming Henderson Clearance Centre and Tokoroa store, The Warehouse Whangaparaoa, Johnsonville and Dunedin Central stores and the Warehouse Stationery Te Awamutu store.

The group also plans to close its The Warehouse store in Birkenhead next month, and Noel Leeming stores in Papanui and The Palms in Christchurch.

The Warehouse Group, which will move to an agile operating model from August 31, received almost $70 million in wage subsidies for its 11,000 staff.

Group chief executive Nick Grayston told the Herald that the job cuts could not be avoided as the impact from Covid-19 had accelerated the business' needs to downsize its store network and move to an agile operating model.

The closure of the nine stores had been planned prior to the pandemic, Grayston said, and more store closures could still happen as a quarter of the group's store leases were coming up for renewal in the next 15 months.

"Whilst there has been a short-term bounce back [in trade] from lockdown, we know that's not going to continue. Statistics from Treasury are out, potentially 200,000 to 250,000 people will be unemployed, backed up from some of our own data; 49 per cent of our customers have said they are starting to cut back day-to-day spending and 25 per cent have what they called 'slammed on the brakes', so it is going to get really tough."

Closure plans had been brought forward amid uncertainty within the sector, he said.

"This is about making sure we're still around and able to survive."

The store closures affected typically smaller stores and were about "balancing the network" to service those customers better, he said.

The group experienced a 75 per cent increase in online orders during lockdown, with its online sales accounting for around 15.9 per cent of all sales in Q3. This is up from 7.8 per cent pre-Covid.

Some days its online orders were 10 times that of its normal volumes.

While Grayston said the group did not expect to sustain the same levels of online sales, he said it did not expect to lose all of those gains.

"Online will continue to be important," Grayston said.

"[Covid-19] has accelerated this and people have got comfortable around it."

The group was now in the process of deciding how much it would invest into its online channels over the next year, he said: "That's going to be a major focus of what we prioritise; whether it is fulfilment, we're [also] working on a new online platform."

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Despite the renewed focus on e-commerce, Grayston said physical stores would remain important for the group and that it was not looking to downsize its network by 25 per cent, but rather merge the two together.

"How you use your store network to satisfy online with low-margin goods is the difference between profit and not," he said.

"The more business you do online the less business you do potentially in stores and that makes the rents and overheads harder to justify. I think commercial real estate will continue to face tough times."

Grayston said 49 per cent of the customers who shopped with the group during lockdown had never shopped online prior to the pandemic. "All of the feedback from those customers is online shopping will be part of their future."

The group's move to agile in August would enable the business to respond to changes in the market and better respond to disruption such as Covid-19. The move would allow staff to continue to work remotely, he said.

"The old ways of working, hierarchical command and control, have been shown not to be fast enough or productive enough to respond to [the] change in trends."

Nick Grayston, chief executive of The Warehouse Group. Photo / Jason Oxenham

All positions across head office were affected by the job cuts, Grayston said, except for senior management, HR and finance, resulting in fewer general managers.

The Warehouse Group's share price gained almost 4 per cent today following the announcement it would close more stores.

Carolyn Holmes, head of research at ShareClarity, said the group's announcement was positive as it showed it was looking ahead.

"The announcement is not unexpected, a lot of bricks-and-mortar retailers are reviewing their whole footprint," Holmes told the Herald.

"A lot of companies through the Covid period have had a good think about their business and strategy going forward. The Warehouse and many of the other merchandise retailers have seen that [customers] are more willing to shop online."

The Warehouse Group plans to close six more stores in its network.

Holmes said it was pleasing to see The Warehouse Group looking at evolving its business model, combining some Warehouse and Warehouse Stationery stores in some locations and closing underperforming stores.

The move to close some stores "made sense" and meant the group would be able to rationalise distribution and warehousing. "The Warehouse was really slow to embrace shopping online, they thought everyone was going to stick to going into their physical stores, so it's good to see that they're forward thinking."

Holmes said there would always be a place for bricks-and-mortar retailing, but the same large-store footprint was likely not needed.

"Retailers around the world are having to reassess their business models, bricks-and-mortar physical presence."