Warehouse posits to be a retailer that survives

Power has shifted to consumers.

Only the fittest and most savvy retailers will survive the digital era and Warehouse Group is accelerating its transformation plan, chair Joan Withers and chief executive Nick Grayston said in notes for the annual general meeting in Auckland today.

Warehouse's share price has fallen around 30 percent since the annual meeting a year ago, a "serious concern," Withers said. The stock last traded at $2.04 versus around $3 at the prior AGM. "Globally, retailers are besieged and only those who are the fittest and who have made the changes needed to compete for today's customers are successful," she said.

Against a backdrop where over $2 billion was wiped off the value of ASX listed retailers in the month following the announcement of Amazon's arrival in Australia, both the board and management team recognised that business as usual or incremental change is not an option, she said.

Under the leadership of Grayston, who took over from Mark Powell in December 2015, Warehouse has embarked on a three-year strategy to lift profitability by removing the complexity and cost of an inefficient operating model and reshaping the company's physical footprint to support the digital business.

In a presentation for shareholders, Grayston said the "acceleration of our transformation plan is now an imperative to respond to emerging trends."

According to the chief executive, power has shifted to consumers and "our retail business model must evolve to utilise new technologies and platforms which connect consumers across global marketplaces to create an experience that differentiates us from our competition."

Among other things, it needs to pivot from a supply-driven model to a demand-driven model, he said. The transformation process includes a leveraged store footprint incorporated with e-commerce, consistent and competitive pricing, good stock availability, automated checkout, a range of payment options and methods as well as a variety of delivery options including two-hour, same day, next day or standard delivery as well as an extensive click and collect offering.

In a recent presentation to investors, the company highlighted New Zealand's ecommerce market is growing at 14 percent year-on-year but that local competition is heating up with the Kmart ecommerce launch as well as global players. Group online sales, however, were up 18.4 percent year-on-year in the 2017 financial year, ahead of the market.

Among other things, it is currently experimenting with different AI packages for strongest customer experience, developing delivery innovation through things like an express delivery trial and testing a chatbot at Noel Leeming.

Withers said Warehouse has secured key international executive skills to help it deliver the change and recently engaged global management consultancy McKinsey & Company to assist with the implementation of the strategy "which should give the market greater confidence that the results we are planning for, will be delivered."


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