The past four years at The Warehouse has been focused on getting the retail basics right. Now, the group is focused on technology that can get its operations running seamlessly.
The $3.3 billion retail company wants to operate as an "ecosystem" - taking a leaf from Amazon, and other global internet giants that dominate the retail space.
Group chief executive Nick Grayston says the Warehouse is striving to become a local version of Amazon - minus the TV and film content production arm.
Now that progress on its transformation is well-established and literally paying dividends, Grayston says the group can dedicate more time to what he considers the fun stuff; the technology to power greater convenience and a better shopping experience.
The Warehouse lifted its third-quarter sales by 35 per cent in the three months to May 2. Combined sales from its retail chains The Warehouse, Warehouse Stationery, Noel Leeming, Torpedo7 and online marketplace TheMarket totalled $791.2 million in the quarter, up 35 per cent on the Covid-hit FY20 result and 10.8 per cent on the same period in 2019.
Its earnings and profitability have been trending upwards in recent years after stagnation following its move to an every day low pricing model and ongoing investment in its product offering.
Earlier this year the group paid a special dividend of 5 cents per share, in addition to an interim dividend of 13 cents per share - a recent historical high.
The Warehouse, founded by Sir Stephen Tindall in 1982, is almost unrecognisable as the same business Grayston joined in 2015, after seven years at Sears Holdings.
Aside from the same branding, behind-the-scenes the business has undergone a major reboot and re-platforming, says Grayston.
"At the outset we identified two main pillars [to work on], the first was to fix the retail fundamentals and the second was to invest in the digital future," Grayston tells the Herald from the chain's new combined Warehouse and Warehouse Stationery store in Ormiston.
The group plans to update 40 of its stores over the next two years, including combining a handful of its stores into dual Warehouse and Warehouse Stationery sites.
It is at about capacity for its store network and is now focused on developing its "online-offline integration". Over the next three years the group expects to spend an average of $100-130 million per year on investment projects. Approximately 50 per cent of that each year will be spent on technology.
"Digital and IT infrastructure. That's something we've been in the process of updating - and there is probably still another two to three years to go, but a lot of that is table stakes; whether its a WMS to help run our [distribution centres] more efficiently or an ERPFI which gives us much more accurate inventory, or replatforming the website, or master data management," says Grayston.
"The strategy is for both of those elements to come together as what we call an ecosystem. There isn't that much experience of ecosystems in New Zealand in the same way, but if you think of the ways our wider world has changed; Amazon for example being nearly as big as Walmart in terms of retail, they've built out the Prime ecosystem and an element of that is marketplace but it also includes free two-day shipping.
"You can also look to Alibaba in China or WeChat in China, where billions of Chinese live their lives off one killer app. There's also examples, particularly in the US, of legacy retailers who are becoming digital, like Walmart and they're leveraging their physical footprint. One thing that has become very apparent that wasn't apparent 10 years ago is the nature of a customer journey - the predictions were 'who's going to shop in stores' and all of these legacy retailers were going to get showroom-ed out of existence by Amazon but fast forward Amazon are adding physical retail with Amazon Go, they bought Whole Foods, and they have a distribution pick up and collection deal with Coles in the US, so in response companies like Walmart are using their physical locations to do things like drive-thru click and collect. In the US there are drive-thru pharmacies and health clinics, and they also have marketplaces, and so they are becoming something of a template," Grayston explains.
"What's happening is that the pureplays are learning how to be merchants that we've always been and we're looking to be digital as sort of a race to see who gets there fastest."
This is what is inspiring the Warehouse Group's own digital journey and Grayston says the group is striving to be "as good as the overseas alternatives".
"Who would have thought the biggest accommodation company in the world would have no property and the biggest transportation company would have no vehicles. That's an illustration of how customer-centred platforms that make life easier, powered by data, knowledge and relationship, enables customers to live better."
The group could potentially look to replicate some of the services Amazon is already operating, he says. Like it had done with its financial fintech services, it would look to partner with third-party providers within the health and entertainment spaces.
Within time, Grayston says he could see the group with its own version of Amazon Prime.
"We've got the advantages of 250-plus locations and almost no Kiwi is more than 20 minutes away from one of our stores ... Fulfilment by TheMarket like fulfilment by Amazon is something we're already testing to have the ability to have harmonised business models."
The group is currently working to integrate its retail businesses. For example, allowing customers to purchase something from Noel Leeming, but collect the order from a Warehouse store.
"If you think about where we've come from. The systems that came in the past with all the different various companies we acquired, there wasn't an integration strategy, but now we're in the situation where we can build once and deploy many around the different businesses."
The Warehouse has begun exploring technologies to make back of house operations and those customer-facing work more efficiently, including cutting-edge technology for its store development work whereby it uses a fish-eye camera through the stores in 20 minutes to create a 3D render of the stores from above that enables executives to zoom into certain points and can be developed to track customer movements and optimise hotspots.
Its Newmarket Noel Leeming store is heat mapped and allows it to watch and analyse customer movements. It has also rolled out an avatar digital assistant called Nola - powered by data - that answers customer questions, and has become so efficient that she is now also involved in staff training.
Grayston says retailing is "on the cusp of convergent technologies" as 5G begins to allow Internet of Things applications to improve customer shopping experiences in real time.
"I think we're at a time where there's an acceleration of converging technologies and the next three, four, five years are going to see an explosion of a totally different way of how customers are going to behave and shop."
Technological advances coming in the short term are unlikely to be "flying saucers and zipping robots" and rather more subtle improvements that enable businesses to quickly adapt to market changes, he says.
The Warehouse anticipates its future growth will come from online and broader "market share gains". Currently, online sales make up more than 10 per cent of total group sales.
