The Warehouse Group plans to cut head office jobs as it battles shrinking profit margins, even as the retail giant posts positive sales growth.
The company, which includes Noel Leeming and Warehouse Stationery, reported total sales of $674.1 million for the 13 weeks ending November 2, up 0.9% on the previous year.
But gross profit margins fell 0.4% with intense promotional activity and “challenging trading conditions” weighing on returns.
The Warehouse Group chief executive Mark Stirton said while sales were up, the company wasn’t seeing enough full-price home and apparel sales at red sheds.
“Sales revenue and units sold are up, which is an encouraging sign. However, we’re not yet seeing the scale of full price home and apparel sales needed to materially improve margin performance at The Warehouse,” he said in an update to the NZX.
“A warmer winter led to slower sell-through, resulting in increased clearance activity, which also impacted the value perception of our new spring home and apparel ranges.”
His company provided a trading update for the first quarter earlier this morning.
Cost ‘reset’ taking place soon at The Warehouse Group
Stirton signalled that the retailer would soon undertake a “comprehensive cost reset programme” to reduce the company’s cost of doing business to below 31% of sales.
“Our shareholders rightly expect decisive action, and that is exactly what we must deliver.”
The planned restructure would focus on head office roles, “without reducing frontline team member roles,” according to the company.
“These changes are unfortunately essential to ensure our operating model is fit for purpose and to secure the future of The Warehouse Group as New Zealand’s leading value retailer.
“These are difficult decisions, and we do not take proposed changes that impact our people lightly. We know the effect this has on our team and their families, especially in the current economy, and we are committed to supporting our people through the upcoming consultation and change processes with care and respect over the coming months,” he said.
The Warehouse Group would also look at potentially “co-sourcing additional areas of the business” with multinational Tata Consultancy Services. Co-sourcing is similar to outsourcing, except that external contractors work more in tandem with internal staff.
“Our strategy is twofold: reducing costs now to recover profitability, while continuing to invest in the areas that will strengthen The Warehouse Group for the long term, like our stores, prices and product range,” Stirton said.
Foot traffic up 0.2%
Like-for-like same store foot traffic increased 0.2% across Warehouse Group stores and conversion improved 0.3%to 58.4%, with units sold up 2.6%, “showing more customers are visiting stores and responding positively to improved product lines in key categories.”
Average selling prices declined 2.4% due to the “highly promotional retail environment, changing sales mix as grocery continues to grow, and ongoing clearance activity.”
“While Noel Leeming and Warehouse Stationery gross profit margins have improved, The Warehouse gross profit margin remains under pressure.
“This has resulted in group gross profit margin down 0.4% year to date compared to the same period last year.
“There are encouraging signs our new product ranges and in-store experience are resonating with customers.
“Trading conditions remain challenging, and we are doubling down on our efforts to improve gross profit margins and reduce cost of doing business in order to help improve profitability.”
