New Warehouse boss still assessing Aussie nightmare

By Duncan Bridgeman

Friday 10th September 2004

The secret of successful retailing is to give customers what they want and that's the basic strategy Ian Morrice intends to stick to as new chief executive of The Warehouse.

But investors and analysts hoping for any comments at today's full-year results briefing about the future direction of the company's struggling Australian operations will be disappointed.

"I think you have to understand how the business is run before you can say what the changes should be," he said yesterday.

"[But] I've come here to assess the [Australian] opportunity and develop it, I've not come here to close it."

The Scottish-born former managing director of commercial operations at British retail giant B&Q started his new role less than three weeks ago. Until he gets his head around the business, he won't do anything radical.

His brief is to bring a fresh approach to management and strategy as founder Stephen Tindall steps into a non-executive role next month.

Morrice is under no illusions about his task.

The country's largest retailer and Kiwi icon has had a disappointing 18 months. Its local "Red Shed" operations are facing margin pressure amid increasing economic headwinds and competition.

And the problematic Australian "Yellow Shed" operations have slammed the company's share price as investors search for signs the loss-making business can break even soon.

Analysts say any exit would be expensive.

A report by sharebroker ABN Amro suggests it would cost the group $200 million to liquidate its loss-making Australian operations.

Tindall has said repeatedly the company is committed to Australia, targeting 2006 as a break-even date.

Morrice wouldn't be drawn on whether that was a reasonable or realistic timeframe, preferring to focus on the opportunities Australia offered.

"I'm not hiding the fact that the business is very difficult so far and it won't be an overnight success. But with that kind of market opportunity ... if we can apply the right retailing skills ... we will turn that around in due course."

He said when US giant Wal-Mart bought a chain of stores in Germany eight years ago it took a long time to adapt to the different market.

The Warehouse's Australian woes have been well publicised. They will also take considerable effort, time and probably money to overcome, assuming a successful outcome is possible.

"The reality is that big decisions are always board level decisions. But the board brought me here to take the business to the next level and develop the opportunities," Morrice said.

As far as the local business was concerned, he regarded himself as realistic rather than pessimistic about the macro environment and the suggestions of a downturn for the retail sector.

He said the type of market conditions starting to appear here, such as rising interest rates and a cooling housing market, had already hit the UK. Typically there was a six-12 month lag to the impact, he said.

"At the end of the day you have to read those signals and cut your cloth accordingly. But from what I've seen, The Warehouse has always been well positioned to ride out the bumps in the road."

Analysts see the performance of the Red Sheds as the most crucial, given those shops provide the company's main source of profit.

First NZ Capital said in a research note it expected Red Shed margins to be adversely affected by a tougher macro environment and increasing competitive pressure. Cost pressures were likely due to higher freight, labour, rental and advertising costs, the broker said.

Morrice said he would start benchmarking the company's cost of buying products with its immediate competitors.

"If you look around the world at the improvements in cost of goods sold that other retailers have achieved particularly non-American retailers that would be a focus without a doubt.

"We compete against the biggest retailers in the world and they're smart, so we've got to make sure we can source at the lowest possible cost."

Morrice said he believed he had the style of leadership right for the business.

"One thing I look for in people who work for me is that they do what they say they are going to do."

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