Warehouse shake-up talk gathers pace

Ian Morrice, chief executive of The Warehouse. Photo / Natalie Slade

Rumours of an executive level shake up at the Warehouse Group are beginning to circulate among fund managers and brokers after poor Christmas sales forced New Zealand's biggest listed retailer to cut its interim earnings forecast.

Several investment sources said the market was rife with speculation that chief executive and managing director Ian Morrice would be shown the door following a 2.7 per cent decline in sales in the two months ended January 2, compared to the same period last year, with same store sales falling 3.8 per cent.

The softer earnings have forced the Auckland-based company to cut its forecast first-half profit to a range of between $51 million to $54 million in the six-months ended January 30, compared to the $57 million reported in the same period a year ago.

Morrice joined the board in 2004, a year after the company's failed foray into Australia, and was at the helm when it launched its play into groceries under the Warehouse Extra brand, which was closed in 2008.

Warehouse chairman Keith Smith said the speculation was "totally rumours".

"I haven't heard them", he told BusinessDesk, and terminated the conversation when asked if he would categorically rule out Morrice's departure in light of the results.

Warehouse has blamed its poor performance over the key festive retailing period on the weak conditions in the retailing sector, which have been tough in the past year.

Government figures on debit and credit card spending over December showed the seasonally adjusted number of electronic transactions fell 1.2 per cent compared to a month earlier, with a 1.6 per cent decline in core retail industries, which excludes motor-vehicle related purchases.

The total value of transactions fell 1.2 per cent to $5.05 billion, ending four months of gains. Still, while most retailers have yet to release their sales figures for the period, the Red Shed's poor performance has set it up for its sixth consecutive quarter of sales declines.

"This is the environment where one would expect a budget retailer to fare very well in," said Buffy Gill, a retail sector analyst for Goldman Sachs & Partners New Zealand.

"They have in fact been one of the worst performing retailers."

According to Goldman Sachs' most recent investment report, Warehouse's market share declined to 7.6 per cent of the retail sector in the last quarter, "a trend evident in the NZ business since 2004, when market share peaked at 10.2 per cent".

Part of the reason why the Warehouse is losing ground in the battle for the consumer dollar is that a number of niche retailers are now competing with the company in most of its traditionally strong segments.

The Warehouse is being challenged in the hardware segment by the likes of Mitre 10 Mega, while Briscoes and Rebel Sports offer stiff competition in the homeware and sporting good areas, and Hallenstein Glasson and Farmers are competitors in the clothing market.

Gill said the problem is compounded by a lack of investment in Warehouse stores, with the Red Sheds five to 10 years behind their competitors.

"Consumers are being more picky in what they spend their money on, but they are also demanding higher customer experience," said Gill.

"There are lots of examples of retailers doing well by revamping stores.

"Warehouse shares were unchanged at $3.58 today, and have declined 13.3 per cent in the past 12-months.

The stock has consistently lagged the performance of the benchmark NZX 50 since June 2008.