Retail expert questions The Warehouse property sale
The Warehouse Group's plan to quit its Newmarket, Auckland property has raised questions among some market watchers
The 1.4ha site on six separate titles at 66-80 Broadway and 11-15 Railway St are occupied by The Warehouse, Warehouse Stationery, Noel Leeming, Torpedo7 plus a few smaller tenancies.
Paul Keane of property consultants RCG said that reading between the lines he concluded there is more going on than the company has revealed.
The marketing of the building is taking place as the NZX-listed company has just posted a plunge in after tax profit for the half year ending January 2017 of $13.6 million, from $57.2m for the same period a year ago.
"It's very unusual when all of a sudden they're saying the decline in sales is driven by online retailing. That's only one thing.
"Are they selling a major property icon, which Newmarket has been for many years, because they want to boost their income stream short term?
"I thought it was all a bit odd. They put off 130 people and I heard they cancelled Christmas functions so managers would focus on sales drives.
"I think there's more to it than meet the eye."
Keane said it had given rival chief executive Rod Duke of Briscoes a good opportunity to crow about his company's strong performance.
"The Warehouse has lost its way a bit. At the same time they've announced a new managing director. All that has had a bit of an influence.
"If you go into The Warehouse stores they don't have the grunt, the excitement, the penetration they once had.
"The new chief executive tried to suggest it was mostly down to competition from online retailing. Seriously?"
The Newmarket property is a major redevelopment opportunity, and The Warehouse had already received resource consent for a mixed-use project to include apartments, a hotel, offices, and retail to include their own stores.
It would have been a $200 million project with retail as only one element, and the company would have retained a presence there.
But now it is selling the property on whatever basis the new owner wants and may not stay as a tenant long term.
Keane said for much of its history The Warehouse had thrived in low-cost operating conditions and low land value sites, where it can pay low rent.
"The landlord has to be willing to accept this, either because of the strong tenant covenant or because they get spinoff benefits with higher rents for shops next door.
"But land values in Auckland are much higher these days, especially in the inner-city areas like Newmarket and the CBD."
These areas were rapidly growing, with residents who should be customers for The Warehouse Group - young, tech savvy and cost conscious, Keane said.
"What about a smaller metro-focused format, as supermarkets are using to great effect?
"So why are they selling? Is the group really so scared of online shopping, or is this just to divert our attention from the fact that they are trying to boost their results by selling assets?"
Keane said The Warehouse had a major place in retailing and must reposition itself quickly but he doubted selling property assets in the face of the online shopping threat would achieve that repositioning.