The Warehouse going upmarket

BY CLAIRE MENTEE

For 17 years it's been the place to go to bag a bargain, but change is afoot at The Warehouse.

The NZX-listed retailer has announced plans to boost its market share in a swag of categories, increasing product ranges and introducing more expensive, higher-quality goods to its lineup.

The company maintains it can keep bargain-hungry shoppers happy while satisfying those with more upmarket tastes; but commentators say it will struggle to shrug off its reputation as a "cheap and cheerful" retailer and attract the right brands.

Tim Morris, retail analyst at Coriolis Research, says The Warehouse's size means its plans will inevitably affect other retailers but any market shift is likely to be slight.

The perception of The Warehouse as a retailer of cheap products will work against it.

"The reality may be that the tent at Kathmandu and the tent at The Warehouse are exactly the same... but there's the perception that the Kathmandu tent might be of a higher quality.

"It's the whole shopping experience. If you're going to buy the woman of your dreams a diamond ring, then I don't think the first place you go is The Warehouse."

Department store WalMart in the United States has pursued a similar strategy and struggled to attract sought-after brands, and The Warehouse will face the same challenge.

"It varies by category but some brands are very important.

"Certainly in electronics The Warehouse has already struggled to get the brands. If you name the top five in electronics ... they don't have any of them."

Larger retailers, such as Farmers and Briscoes, have the resources to react quickly to any impact of The Warehouse's move, but smaller players are less flexible.

"It's just another nail in the coffin for a lot of smaller regional chains. The major players may feel it slightly but I don't think it's going to put Michael Hill out of business."

Briscoes chief executive Rod Duke says previous forays by The Warehouse into new markets and categories, such as food retailing and an exclusive homeware brand, have been largely unsuccessful.

"They've been trying to get into a lot of these markets such as big-ticket large-screen TVs and all they've got to offer is the famous Transonic brand that no-one's heard of."

Retailers have tried to swipe Briscoes' market position and customers but only alienated existing customers and soon reverted to their core business, he says.

Ian Douglas, owner of Wellington jewellery store The Village Goldsmith, says customers will shop around before they consider splashing out on higher-priced products at the big Red Shed, and competing stores that offer a high-quality product at a good price are going to benefit.

The Warehouse will have to source its jewellery from China and India in order to compete on price with the likes of Michael Hill and Pascoes.

"It's going to be at the lower end of the spectrum in terms of quality of materials and craftmanship."

Michael Hill and Pascoes will not be perturbed, he says.

"They do extremely good jobs for the markets they target ... they know their markets really well."

Categories on The Warehouse's hit-list include jewellery, consumer electronics, health and beauty, homewares, shoes and fishing and camping.

Chief executive Ian Morrice is coy about the retailer's exact plans, but says its current market share in those categories ranges between less than 5 per cent and 15 per cent.

"We've looked at the market size of certain categories in New Zealand and looked at our market share and we're essentially targeting those categories where there's a reasonably large market but we've got a relatively small share."

The Warehouse will not transform into a premium retailer, and will remain the lead provider of low-price "everyday" products, he says.

THE changes are not all about introducing more expensive products.

In fishing and camping the focus is on offering more choice, while shoes and jewellery will step up in price.

"In shoes our price points tend to be less than $30 and we still intend to retain all of our choice in the lower price products ... but what we have seen is a shift in the New Zealand consumer," Mr Morrice says.

"In shoes they're looking for something that is more fashionable, with an emphasis on design, quality and fit, and there's been a shift into price points between $50 and $100."

Customers are prepared to spend $500 to $1000 a time on quality jewellery, and new jewellery centres in its "Extra" stores with better displays and lighting will allow The Warehouse to boost its range by more than 30 per cent.

"We're working out how to compete very coherently in the part of the market where customers are spending most of the money."

Brands are irrelevant in a lot of categories but where they matter The Warehouse will seek them out, Mr Morrice says.

It recently added Timex and Guess brands to its range of watches.

"We have added what would be considered mainstream brands that are desirable and that we can make more affordable."

He dismisses suggestions The Warehouse can only ever be a discount retailer.

"I don't think it has to be either or. Our stores are big enough and our brand is strong enough that customers are prepared for and looking for us to offer more than just cheap everyday products."

SHAKEUP NEEDED TO LURE BIG SPENDERS - BLUMSKY

The Warehouse will need to shake up its staff service model if it wants to woo higher-spending customers, retail consultant and former Wellington mayor Mark Blumsky says.

"If the customer will be spending more they will want a better service level from someone with product knowledge.

"The Warehouse struggles with that.

"Their model doesn't allow them to have a lot of people on the floor telling the stories of products and the check-out operator can't do that."

The Warehouse chief executive Ian Morrice says it is primarily a self-service store and will boost its staff resources only where necessary.

It has changed its packaging and presentation in categories such as camping and fishing to help customers decide for themselves.

"The packaging for every fishing rod and every fishing rod combo tells you exactly what it is ... if it's a casting rod, a surfcaster, what fish it will catch ... and what the strength of the line is."

Jewellery staff have undergone extra sales training to help them advise customers.

"There are some categories like jewellery where clearly the customer has to be attended to and as sales go up the amount of staff investment will go up as well."

Mr Blumsky says The Warehouse may not struggle as much to attract brands as some might think, with the fallout of the recession working in its favour. "It might be easier than it used to be to get higher-value brands. Manufacturers and wholesalers will be looking for other outlets that can exit their products. It's tough out there."

- © Fairfax NZ News