Woolies deal spooks investors at The Warehouse

Shares in the country's biggest listed retailer, The Warehouse, fell another 4 per cent yesterday on investors' jitters over the push into New Zealand by Australian retail giant Woolworths.

The Warehouse share price has dropped by 7.4 per cent over the past two days to $3.12, valuing the company at $953 million.

Analysts at sharebroking firm Smith Barney knocked the stock down from a "hold" to a "sell", cutting profit forecasts from 2007.

They believe Woolworths will increase competition and The Warehouse profit margins will suffer.

The Warehouse's chief executive, Ian Morrice, said his company's strategies were not affected.

"As far as we're concerned, it's one Australian owner swapped for another," he said.

Asked about fears of Woolworths launching new stores that would hurt The Warehouse, Morrice said zoning and consent requirements meant launching a large food and general merchandise store could take as long as three years.

"Essentially, it's going to take some time before the potential impact - or not - of the change in ownership is seen."

Woolworths announced on Wednesday that it had agreed a $2.67 billion deal - due to be signed off by shareholders in August - to swallow the Foodtown, Woolworths and Countdown supermarket chains owned by Australian retailer Foodland.

The Warehouse's investors fear Woolworths' expertise in general merchandise.

In Australia, Woolworths operates Big W, a discount general superstore.

Some of the Australian giant's "supercentres" include a supermarket and a Big W under one roof.

The company is promising to investigate the launch of such supercentres in New Zealand.

Chief executive Roger Corbett said on Wednesday that general merchandise offered "a lot of opportunity" in New Zealand.

Another issue for The Warehouse is the expectation that Woolworths will use its buying power to force down grocery prices.

The Warehouse is planning a push into groceries - a plan Morrice said was not affected by Wednesday's announcement.

ABN Amro Craigs broker Matt Willis said: "A player like Woolworths has very, very deep pockets and competing with an entity like that is always going to be tough."

- additional reporting: NZPA, Reuters.