Soul searching at struggling retailer Smiths City

Wednesday, 5 September 2018

To save Smiths City from drowning in debt, some of its 32 New Zealand stores could close and any fix 'won't be quick or cheap'.

Alastair Kerr, the new chairman of loss-making national retailer Smiths City, tried to mollify testy shareholders at the annual meeting when they wanted to know how long it would take to turn the company around.

Just two years ago Smiths was planning a big payout to shareholders as it spearheaded a foray into the Auckland market with two revamped stores - but things went pear-shaped quickly as sales and margins fell and it went into the red by $7.2 million.

Any prospect of a dividend was shelved, a new board of directors and new managers were installed, and a review of retail lines carried out.

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But Kerr said there wasn't a quick fix and it was going to require more investment to lift the game of tired regional stores, and the company wouldn't hesitate if it needed to close any underperforming shops out of the 34 it operates around New Zealand.

Kerr said the source of new money hadn't been worked out yet. A shareholder said that a share issue would send their price lower. The price has halved to 34 cents over the past year.

Borrowing more money would be challenging. Chief financial officer Celia Mearns outlined how the debt ratio had risen from 31 per cent to 40 per cent.

A shareholder asked why the price of appliances in Smiths stores was so volatile, sometimes from day to day.

Chief executive Roy Campbell said staff from rival chains such as Harvey Norman and Noel leeming were constantly scouring the internet to check each others' prices, as was Smiths City.

This meant Smiths had to match those other chains and often shave its margins. But the trick was to offer other complementary products with higher margins, Campbell said.

In response to another shareholder's scepticism about internet shopping, Campbell said there was no going back.

He explained how he had interviewed a shopper from Pahiatua who had begun researching prices and specifications for a product on the internet and decided on a Smiths appliance, which he then looked at in one of the stores and subsequently ordered. 

Chairman Kerr said this was the modern face of retailing where shoppers would research information online but for bigger items would generally visit a shop to make the purchase.

However online shopping was rising overall and some retailers were achieving nearly half of their sales via the internet, he said.

Facebook, Instagram and other social media outlets were proving more effective than traditional advertising, he said. 

Company managers were looking at the kind of products people wanted and their in-store experience, especially in Auckland, he said.

Shoppers in major cities had different tastes and needs to those in the regions. For example Auckland had a large number of people who lived in two-bedroom apartments and retail products had to appeal to them, Kerr said. 

Positive developments included being voted number one in a Roy Morgan customer satisfaction survey.

The company was lifting the wages of lowest paid staff and had given them a 'well being' day off, which they could take from annual sick leave accrual.

Kerr summarised his address by saying there had been under investment in the company's systems. 'It's not a quick fix and it won't come cheap,' he said.

He refused to be drawn when a shareholder asked him several times for a timeline on recovery.

The company had $6m of cash at the end of the financial year. All the debt of $60.9m was carried against finance company receivables of $68.2 million.