Warehouse launches self-branded financial services, two credit cards, and signals pre-pay mobile coming

Friday 6th November 2015

Warehouse Group, New Zealand's largest listed retailer, has launched its long-heralded financial services brand, Warehouse Money, offering two credit cards and five new insurance products, and also announced plans to launch a pre-pay mobile brand later this month.

The Warehouse aims to grow its lending book to $600 million within five years at which point it expects the financial services arm will add $30 million to earnings before interest and tax. Warehouse posted a 5.9 percent drop in profit last year and is looking to generate earnings growth away from its traditional retail base, following a $100 million 'refresh' programme for its Warehouse discount stores, the acquisition of Noel Leeming and Torpedo 7, and its move into online sales.

Chief financial officer Mark Yeoman said the company has offered financial services for the past 14 years in a joint venture with Westpac Banking Corp, but after the 2013 acquisition of Noel Leeming decided to take it in-house and capture the value.

“The short-term driver is to diversify an earnings stream for the group that is away from the retail business," Yeoman said. "It allows us to tailor financial services to support our retail businesses which is hard to do when you are white-labelling generic products.”

Warehouse reported a $2.8 million loss from its financial services arm in 2015 and Yeoman said they hadn’t yet put a number of expected losses for 2016. He said it could take two years before Warehouse Money makes money but profits would then be put back into the business to ensure it hits the targeted scale.

The group bought Diners Club New Zealand for $3 million last year and last month spent $7.3 million buying Westpac out of their joint credit card lending venture. It provided the loans for the company’s Red Card which it stopped issuing in October. That move gave it a loan book of about $57 million and 42,000 cardholders.

Yeoman says the $115 million in equity it raised last year is expected to provide sufficient funding to meet the $600 million loan book targeted by 2020, and it had also arranged a subordinated debt facility with Westpac that would cover the remaining 80 percent of the loans.

The two Warehouse branded Visa credit cards have no establishment or annual fees and charge an interest rate of 19.95 percent. The Warehouse Money card offers shoppers a 5 percent discount in all Red Sheds stores and online, including sales items. The Purple card is aimed at consumers who favour rewards schemes. The rewards dollars are redeemed at Warehouse stores.

The retailer has partnered with insurance providers nib and Vero to provide five new insurance products covering travel, health, car, home, and contents insurance. It already offers pet insurance in conjunction with Petplan.

Yeoman, who is also CEO of the Warehouse Group Financial Services, said the financial products are designed to be simple to understand and will "help us to develop a leading New Zealand retail financial services company.”

Tania Benyon, CEO of group sourcing support, said pricing details for the group’s planned pre-pay mobile offering in conjunction with partner Two Degrees Mobile will be announced on Nov. 23.

She said they had been in talks with all three major telecommunications providers over the past 18 months but felt 2degrees was the best fit for its customer base.

Benyon wouldn’t reveal the targets the group has for Warehouse Mobile but said pre-pay already accounts for two-thirds of the mobile market.

The phones and pre-pay packages will sell only in the Red Sheds though may later be extended to Warehouse Stationery. The retailer will continue to sell other pre-pay brands and phones in its existing range.

Yeoman said there was an opportunity to look at bundled offers between the financial services arm and Warehouse Mobile at some point in the future.

The Warehouse also announced a first-quarter sales update today, with sales up 7.7 percent to $634.5 million and improved margins at its discount chain ahead of the key Christmas trading period.

Warehouse stores, which make up 59 percent of total sales, increased revenue 4.1 percent in the quarter while Noel Leeming first-quarter sales jumped 14 percent to $163.9 million, as it cycled a weaker year-earlier quarter impacted by limited stock in smartphones and a digital switchover.

Group chief executive Mark Powell said it had been a strong start to the year but the most crucial period for the retailer was the second half which is why it doesn’t provide full guidance on its full-year result until after the Christmas period.

The shares rose 1.5 percent to $2.75, and have dropped 13 percent this year.

BusinessDesk.co.nz

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