Shoppers go down road to Kmart, denting Warehouse sales

Wellington shopper Elvira George would rather drive 40 minutes to Kmart in Porirua than visit her local Warehouse store five minutes down the road.
The Miramar hairdresser used to pop in to the Warehouse store at Lyall Bay every other weekend and have a look around if she had a spare 20 minutes, but said she goes there less frequently now and just to get something specific.
“For us, it’s easy because it’s convenience, close by, but we tend to do more at Kmart now because it’s got more variety and better quality,” she said.
“The products that they’ve got seem to be a bit better. Whereas I feel the Warehouse ones look cheaper, and don’t have as much style – so if you want to go budget style, you go to Kmart. They seem to be a bit more on trend.”
Where Kmart is on a roll – planning its biggest store at Westgate in Auckland, a colossal outlet spanning more than half a hectare – Warehouse is struggling to find its mojo. 
The company has been exiting its unprofitable businesses to focus on its three core brands – the Warehouse, Warehouse Stationery and Noel Leeming. 
Still, the outlook remains challenging and the group has flagged sales will be down 6-7 percent when it reports its annual result on Thursday. Analysts are expecting the company to nix a final dividend payment.
Forsyth Barr analyst Paul Koraua said the Warehouse’s troubles have come to the fore in tougher economic times.
“The New Zealand domestic consumer is pretty weak,” he said. “What then happens is that consumers then pivot towards where the best product, price, and offering provided to them by retailers are, and at the moment, that’s just not the Warehouse.”
He noted that retailers Briscoes and Kmart were still performing pretty well in the weaker economic environment while Warehouse and Harvey Norman have been struggling.
“Their price and product offering to consumers isn’t strong enough in the current environment,” he said. 
“When times are tough, it’s really those retailers that have a strong value proposition which consumers will gravitate towards.” 
The Warehouse can seem like a ghost town some evenings whereas Kmart is packed with shoppers queuing in line at the checkout, he noted.
“That’s just the difference in how consumers are treating the two brands. 
“They compete in all the same categories. Basically, they’re competing for the same consumer – your ‘lower price everyday consumer’ and they’re winning share at the moment. On price and product, they seem to be doing a lot better than the Warehouse are.”
A weak result for the Warehouse won’t come as any surprise on Thursday and Koraua said analysts would be focusing on more recent trading since the July 28 balance date, to see if the company had been able to stem the losses.
“What people will be looking for is how trading has continued into the coming months,” he said. 
“We obviously are not expecting sales growth to return. If we see that sales are still declining pretty materially that might be a little bit more cause for concern, but if we can see that they can stabilise some of those sales declines, we might be able to take a little bit more of a positive view on both the Warehouse and the general New Zealand consumer.
“It’ll be all eyes on the outlook.” 
Forsyth Barr expects flat sales for the company in the coming financial year, with pressure on margins given competition for shrinking customer wallets.