I have been overseas for the past couple of weeks in the USA. In that time we have had a general election in New Zealand and to date we still don't as a result have a Government. In some ways, it’s a little like the USA 2016 elections in that the party with the majority of the vote don't actually win!! It’s very odd. Certainly in the USA there is a high level of frustration and confusion amongst the populace, and I suspect that racial issues are still bubbling away at the surface.
"However, the purpose of this week’s commentary is not about political comparisons but rather the purchase and cost of goods."
In New Zealand we seem to have a reluctance to add costs to achieve revenue, an example is the improvement to traffic issues through the collection of surcharges. This is certainly an Auckland focus. Not so elsewhere and particularly in the USA. There is nowhere in that “great country" where the consumer can escape the cost of tax and other charges on purchases. An example is a couple of drinks that attract a cost of $36.70, however tax is added at $3.25, plus Government Mandates of $1.47 total bill $41.42. It doesn't end there, you have to tip!! At the bottom of the bill a notation is listed highlighting what the tipping amounts can be, based on 15, 18, or 22%. Add the tip and the total sum can be upwards of $50.
This applies across the board, and adds incredibly to the actual listed total cost of the goods or services. It is an interesting society in that the dollar literally rules. The basic wage is low and the consumer supports the national wage through "tipping".
"We can learn from this experience."
The average consumer simply, has no option than to "suck up" the cost of goods and services. When we as individuals travel we accept the countries we visit for what they are and as a result accept the conditions under which they operate. Conversely we should be less afraid of charging our visitors to help improve our domestic facilities. The proposed tourist charge to our international visitors will be a drop in the bucket and much less that the costs we face overseas by comparison. Certainly in my view, we have nothing to be concerned about compared to other like environments in other countries.
The Warehouse Group has been New Zealand’s largest listed retailer for well over a decade. Given its size, it’s probably inevitable that it’s had a mix of successes and failures, and both have been pored over by the industry.
Buying Noel Leeming for $65 million in 2012 was a smart move. The Warehouse Group overhauled the appliance chain, closed Bond & Bond, and Noel Leeming is now making good profits. At $19.3 million operating profit in the last year, Noel Leeming is paying itself back quickly.
Investing (and ultimately buying) Torpedo7 was a good move. And yet Torpedo7 seems to have lost momentum: previously a pure-play online retailer, its expansion into opening stores has had mixed results, and Torpedo7’s sales growth was just 6% in the last year.
Warehouse Stationery has had a great few years: sales went from $200 million in 2011 to $280 million today, with profits also consistently higher. The growth has flattened off in the last year, but it’s still a very successful operation.
And yet all three of these businesses combined are a fraction of the size of The Warehouse’s ‘red sheds’. The red sheds account for 59% of group sales and 78% of operating profits. Although the overall Group has been diversifying successfully, and will keep doing so, it will sink or swim based on what happens in The Warehouse-branded stores.
The Warehouse stores are not doing badly – they’ve survived, and stayed profitable through a turbulent decade. Sales have grown from $1.5 billion to almost $1.8 billion in the last decade. But ten years ago, The Warehouse’s ‘red sheds’ were making operating profits of $140 million a year. These profits fell sharply over 2008-2012, and have been quite consistent at $80-$90 million a year ever since. While the company’s “turnaround” strategy may have helped them avoid a worse outcome, it hasn’t resulted in higher profits.
The Warehouse Group is still a successful and active retailer, but it can’t afford to lose sight of its original (and most profitable) business. It needs a strategy to keep them relevant and preferred for customers from Newmarket to Mosgiel.
In The Press
Retailers exceed expectations, face mounting pressure
New Zealand's listed retailers had a better than expected results season but mounting challenges from online global retailers and the rise of Amazon is expected to put more pressure on the sector.
The share prices of Hallenstein Glasson, Kathmandu and the Warehouse have spiked in the wake of full-year result announcements in the past few weeks.
New legal action launched against councils on leaky homes
Keith Coffison is at his wits end in a battle with Auckland Council over a leaky home issue - and signing up to a novel legal process for justice. Coffison's case for damages is a modest $10,000, but it's become a personal matter around the health of his daughter who suffers from a hole in her heart.
Repairs to Wellington City Council headquarters expected to cost more than $30 million
Wellington City Council has warned its insurers that the repair bill for earthquake related damage to one of its buildings is expected to be more than $30 million. The pink, six-storey civic administration building, which was built in the 1990s has been closed since the November 14 earthquake.
Changing trends shape takeaway chain's property portfolios
Fast food is hugely popular in New Zealand, and the amount of commercial space fast food chains occupy makes them influential players in the property market. Between them, the major chains have more than 800 outlets in prime locations across New Zealand, most of them leased.