The Warehouse low price strategy sees profits drop

Thursday, 8 March 2018

Sales at The Warehouse dropped from $975 million to $940m.

The Warehouse Group profit has taken a hit following its decision to lower prices to its customers.

Profits have dropped 15 per cent from to $35.3 million after tax for the half-year to January 28, from $41.6m for the same period a year earlier.

This comes after the company announced a 2.8 per cent drop in sales during the 'critical' Christmas trading period in 2017.

Chairwoman Joan Withers said the profit slump was due to a number of 'major changes' in the business, including a shift from 'hi-lo' pricing to 'every day low price' strategy at The Warehouse stores.

The Warehouse Group chairwoman Joan Withers says the plan for the first half of the financial year was to 'relentlessly trade the peak retail season'.

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The change in pricing strategy resulted in lower average selling price, but this was expected to be more than offset by higher profit margins now that the clearance of discontinued ranges has been completed, Withers said.

In addition, combining Warehouse Stationery into The Warehouse caused 'a number of internal systems and process challenges', Withers said.

That, coupled with a softer trading in key categories, saw a 'sharp decline' in profit at Warehouse Stationery.

'The return to more normal performance levels is a key focus for what has been historically a very strong performer for the group,' she said.

The stationery business started to recover towards the end of January, as it entered its key Back-to-School trading period.

Withers said the company's primary focus for the first half had been to 'relentlessly trade the peak retail season', while also focusing on its transformation.

'A key pillar of our strategy is to fix our retail fundamentals, which means driving major changes in the way we operate the business…'

The Warehouse Group owns The Warehouse, Warehouse Stationery, Noel Leeming, and Torpedo 7.

Sales at Noel Leeming were up 7.5 per cent to $453.9m.

Cellular and portable audio were most popular during the period, while TV sales remained on-par with a year earlier.

Torpedo7 reported sales of $88.6m for the half year, up 2.5 per cent.

Group online sales were up 10.5 per cent to $117.4m, while sales on its daily deals site 1-day were flat.

The Warehouse shares were unchanged at $2.02 a share in early afternoon trading.