Smiths City eyes Auckland sites

NATIONAL VISION: Smiths City chief executive Rick Hellings says the group has identified targets for acquisition in Auckland.
NATIONAL VISION: Smiths City chief executive Rick Hellings says the group has identified targets for acquisition in Auckland.

Listed home appliance and furniture retailer Smiths City Group is planning an acquisition to expand into the booming Auckland market next year.

The Christchurch-based group, which has 28 Smiths City stores nationwide, currently has none in Auckland, Northland or the central North Island. Its main competitors - Noel Leeming and Harvey Norman, are both national chains.

Smiths managing director Rick Hellings said the company would prefer expanding into Auckland through buying a furniture company that could be rebranded, then adding home appliances.

An acquisition at the right price was preferable to setting up new Smiths City stores from scratch because it should provide better store locations and a ready-made customer base it could add value to, Hellings said.

"We're not talking to anyone at this stage but we have identified some targets. 2014 is the target date for us as the best time to buy is when the retail market is tough."

Auckland regained its top billing last week as the country's fastest-growing economic region in the ASB Main Report Regional Economic Scoreboard, on the back of strong population and employment growth.

Hellings said ideally the group would like to have four Auckland stores, and it would then reassess its options in the central North Island.

"It would improve our buying power, particularly on the importing side for furniture," he said.

The furniture market nationwide this year was $1.9 billion, just slightly up on the year before, while the appliance market dropped slightly from the year before to $2.6b.

"The marketplace has had very little national growth and there is huge competition. We have to make our own growth and profit improvement," Hellings said.

The group expanded into the east coast of the North Island in a similar way, acquiring the Meikels chain of six stores, rebranding them and adding a couple more. But he admits Auckland will be a huge challenge.

"Auckland is a difficult market, with one third of customers Asian and one third apartments. We're used to dealing with homes rather than very small apartments. Our problem is the Auckland market doesn't know Smiths City."

Any Auckland purchase would be funded through retained earnings rather than tapping shareholders for more money, he said.

The company's shareholder base has changed in recent years. It used to be relatively tightly held by Hellings, chairman Craig Boyce and Datacom investor John Holdsworth, whereas the top two shareholders are now Auckland private investor Carrick Belton and San Francisco-based firm Guaranty Finance Investor, whose chief executive Don Campbell has invested extensively in New Zealand and Australia.

Smiths City shares were trading around 63c on the NZX last week, valuing the group at $33 million.

Smiths City operates in three industry segments - retail, property and consumer finance.

Hellings said its key point of difference in the market was having its own finance company to which the ANZ provided a $75 million funding facility. Other retailers typically finance customers buying big-ticket items through a third-party finance company.

Hellings said that not only allowed the group to be more flexible when customers experienced repayment problems but fitted its overall strategy of following a customer right through the transaction, including delivery to your door.

The Smiths mantra is repeat business geared to the lifetime of each customer.

"We've been built on quality brands, staff and locations and are a full-service retail, not a discount operator," Hellings said.

The group reported a 23 per cent jump in net profit to $5.4 million for the year to April off revenue of $222.5m.

That represented an 11.6 per cent return on equity against a target 15 per cent.

The Smiths-branded stores account for 80 per cent of the group's business, and it also operates the Powerstore specialist appliance chain in the South Island and the Wellington-based appliance chain LV Martin.

Distribution is a huge cost for the company, and a few years ago Hellings said it switched from one distribution hub in Christchurch to also having ones in other parts of the country but it turned out to be a "bloody disaster".

It proved too difficult estimating what goods would be sold at particular stores. It went back to having just one Christchurch distribution base but Hellings said it got smarter with its use of technology to achieve the required freight and storage savings.

When a customer wants a particular lounge suite in a certain colour, for example, the staff member can look up online what's being shipped at that time and allocate one already in transit. The waiting time for delivery averages two to three weeks.

Some 68 per cent per cent of lounge suites, its biggest-selling furniture item, were now sold before they even landed in New Zealand.

The group also plans to boost its online offering, which currently simply mirrors what is on sale in-store , and also move into niche markets such as fitting out motels and schools as part of the Christchurch rebuild.

Sunday Star Times