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Retail is where the heart rules

Friday 26th April 2002

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Pacesetters lead industry generating $46b a year

Executives have given the thumbs up to The Warehouse as the most exciting retailer in New Zealand. This month The National Business Review series on New Zealand's most exciting companies focuses on the retail trade. One of the country's most important industries, it has more than 38,000 stores employing 220,000 people and generating $46 billion a year.

Research company New River, sponsored by Xtra, has interviewed industry insiders nationwide to find who the most exciting players are, and why. Interviews were conducted with key managers of industry associations, mall operators and retailers themselves. These experts identified a bumper crop of exciting retailers. Who do they find exciting?

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How they rated

The excitement ratings, the most exciting first:

  1. The Warehouse, the nationwide bargain retailer;
  2. Pumpkin Patch, childrenswear retailer based in East Tamaki, Auckland;
  3. CraftWorld, an Auckland-based chain of stores retailing crafts;
  4. Shoe Science, an Auckland-based chain of shoe stores; and
  5. Pacific Retail Group, a combination of retail chains.
Despite a nationwide focus of the research, Auckland-based companies gained the highest ratings. There were exceptions, however, with 28% of exciting retailers found in the provinces.

The Auckland advantage in retail might be related to population; retailing is a business about getting people through the tills, and Auckland has more people.


Why they rated

The Warehouse rated as the most exciting company for positive leadership, imaginative business, exceptional growth, and its effect on others.

The Warehouse's business has grown at a compound rate of 18% a year, from revenues of $172 million 10 years ago to $1.6 billion in 2001. But more important is how it has grown.

John Albertson, chief executive of the Retailer Association said that over the past 20 years

The Warehouse had done more to change the face of the industry - behind the scenes, as well as publicly - than any other retailer.

Its positive leadership of the retailing industry, and in New Zealand business, scored highly.

The Warehouse does not follow anybody but leads from the front. Consider the recent expansion into Australia. Other retailers like Michael Hill and Glassons introduced small numbers of stores.

The Warehouse went for critical mass first up, by acquiring two Australian chains.

The Australian operation is still 18 months away from full speed, according to Warehouse general manager David Wilson. But this is the way of The Warehouse.

It is cutting its own path again, just as it did 20 years ago when government controls were eased.

Although results speak for themselves, The Warehouse has been criticised for hurting small-town businesses. But Mr Wilson does not agree.

"We don't go into communities if we're not wanted. Before starting a new store Stephen Tindall, Greg Muir, or another senior executive will go and address the local community," he said.

"For many smaller communities The Warehouse actually draws business in. Warehouse managers even offer local retailers guidance on how to succeed by redeveloping their lines."

Pumpkin Patch, No 2 on the list, is an exciting home-grown retailer starting to take on the world.

Pumpkin Patch rated because of its extraordinary growth, international success and imaginative business.

Based in East Tamaki, Auckland, Pumpkin Patch's story is the stuff of most retailers' dreams.

Starting small with a mail- order catalogue and a single store in 1991, Pumpkin Patch now has 60 stores throughout Australasia and five stores in the UK.

In 10 years it has become the largest specialty childrenswear retailer in Australasia.

Pumpkin Patch developed a new market for New Zealand-designed high-quality childrenswear. What it created was almost a new retail category in New Zealand - fashion for children.

All the surrounding aspects link in, including cute stores with novel decor and special places for the younger customers to play while their parents shop.

Westfield New Zealand has seen firsthand the impact of Pumpkin Patch.

Westfield general manager of leasing Clive Mackenzie said: "Pumpkin Patch's stores are so popular that there's huge demand. We've had many calls asking for Pumpkin Patch to be placed in our malls."

Rare in the retailing industry in New Zealand is international expansion beyond Australia.

The traffic is usually just incoming, with offshore retailers setting up shop here. Pumpkin Patch is breaking this mould.

It has moved successfully into the UK, growing from a single store in 2000 to five stores today. Others can take note.

CraftWorld, which rated third most exciting, uses a unique retail model. It rated highly for having the most imaginative new approach, market growth and its effect on others.

CraftWorld is a retail chain that deals with New Zealand craftspeople only. It has large shops, about 1000sq m, where hundreds of craftspeople can sell their wares.

The concept sounds odd and most retailers thought it would last only six months.

Instead, it has grown quickly to three large stores nationwide, with more likely to open soon.

CraftWorld stores have an unusual effect on customers. At first stores look strange, but then buyers identify, feeling that they could make something too.

For some, an hour in the store just is not enough.

CraftWorld also has quite an effect on others. It supports New Zealand craftspeople.

Only products that are 51% Kiwi made can be sold there. Many of the sellers have no other outlet, so cottage industry is supported.

There's a bit of high-tech spin as well. At the end of the day, sellers sign into the CraftWorld website and see exactly how much they sold.

The chain takes a risk by including many unproven items but it offsets these chances with an unusual policy. Craftspeople rent their booths at modest monthly rates.

CraftWorld can cover part of its costs regardless of sales.

CraftWorld has its less than elegant corners but it is creating a successful new niche.

The fourth most exciting rating went to Shoe Science, a small retail chain providing innovative new types of services.

Shoe Science rated because of its highly original retail services, its initial success and the effect on customers.

The focus of Shoe Science is to provide proper fit and function first, and fashion second.

Shoe Science has developed a way to analyse how a customer's leg, foot, and walking style work together with a specific shoe.

You put on the shoe and run or walk down their 10m indoor track a few times.

A video replay shows what is good and bad about that shoe for a particular customer.

It is a custom process that takes a lot to implement: a track, video equipment, good procedures and specially trained staff. It also costs customers a little more.

But what they get in return is loads of personal service, a better fit, greater comfort, fewer sports injuries and less pain.

Shoe Science director Murray Jolly learned from podiatrists about a need for reliable shoe fitting.

Since starting around eight years ago Shoe Science has grown to three stores and a head office.

Perhaps the ultimate complement is that recently competitors have started to copy it.

Pacific Retail Group (PRG) is well-known for its chains of retail stores, including Bond & Bond, Noel Leeming, and Living & Giving. Recently, the company has launched Big Byte Computer stores in Palmerston North and Christchurch and bought Bendon.

PRG was rated exciting mainly because of imaginative business. There is also suspense in the air, with some retailers wondering how PRG is going to fit all the pieces together.

PRG's acquisition of Bendon raises the tantalising possibility that a set of manufacturer-owned brands can be leveraged in a new way, to become a retail chain.

Often manufacturers launch retail outlets, such as Carter Holt Harvey with Carters, and Fletcher Challenge with the Building Depot.

But New Zealand retailers rarely buy manufacturers for their brands.

The other big move has been the launch of Big Byte computer stores. The Big Byte idea is simple: large computer superstores, equal to the best on the globe.

They aimed for a wider range, with better merchandising, and more service. Peter Halkett, CEO of PRG, says "Big Byte results to date have been ahead of schedule."

How these new moves will fit together, and what's coming next from PRG, creates anticipation in the industry.


Lessons learned

  • Performance tops: As in other industries, outstanding financial performance and growth are essential for retailers to be viewed as exciting. One hundred per cent of exciting companies rated highly on performance. Another 72% had a positive effect on others. One shortcoming in the performance profile of retailing is the low level of international expansion by New Zealand firms. Only a few Kiwi retailers, like Pumpkin Patch, are making it abroad.

  • Positive leadership: Performance is essential but how the results are obtained is even more important. Positive leadership is a broad category of actions that can create excitement. The Warehouse rated highly because it focuses on leading the industry forward, not on crushing others. Respondents identified 19 different areas in which The Warehouse is pushing the boundaries, including supply-chain management, selecting locations, branding, its offshore expansion, and new services.

  • Imaginative business in retail: Nearly everybody on the exciting companies shortlist (89%) is now an innovator in product lines, and over 50% differentiate with price. Pacesetters in retailing are going much further. They show a broad range of different approaches in concepts, branding, product sourcing, business models and social responsibility. Taken together, it is imaginative retailing at its best.

What's making these retailers exciting? David Wilson of The Warehouse has the final word: "it's a company built all around people. People who are motivated, who enjoy coming to work, get a slice of the action, and work in an accountable, open and honest environment. [It comes from] having a very good business model."


Others to watch

Other shortlisted exciting firms were The Building Depot, Thomases, Glassons, and Wendy's Fashions.

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