Smiths City jostling for position with big retailers in crowded market

Saturday, 6 July 2019

Smiths City stores have been described by a market commentator as being like something out of the 1970s.

Kiwi homeware retailer Smiths City's 1970s-style shops may suit New Zealand's regional heartland but it hasn't cracked the Auckland market where it competes with Australian chains.

Three year ago Smiths City bought stores formerly owned by Furniture City in Whangarei, and in Auckland's Mount Wellington and Wairau Park.

Now it is downsizing its Mount Wellington shop and looking for an alternative site to its Wairau Park premises – yet its rival Harvey Norman has reported 'pleasing' results from its flagship store there.

Auckland-based merchandising expert Tim Morris, director of Cariolis, questions why Smiths was still around and does not rate its survival beyond five years, regardless of improved financial performance.

* Smiths City's $1.5m for unpaid meetings adds to red ink

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'It's been transforming for three years now. I just don't get their stores. They're like the 1970s,' Morris said.

Kmart's recent changes in products and locations showed how a retailer could get its act together, he said.

'Smiths doesn't seem to have a message that it owns. Why would you buy an appliance from Smiths that you could get elsewhere? Smiths is like a poor man's JB Hi-Fi.'

Other companies such as Harvey Norman gave customers the impression they will cut a deal, Morris said.

Smiths City posted a smaller loss of $1.7 million this year..

However, Simon Duffy who heads promotional group, Uniquely Nelson, said the Smiths style still attracted regional shoppers.

Smiths nearby rivals like Noel Leeming or Harvey Norman might have a more defined product range but many locals liked going to a shop where could browse to buy a fishing rod, barbeque, whiteware, kayak or furniture, Duff said.

'For Nelson I think it's still relevant with its mixed range. It fits with heartland New Zealand. And the staff are local characters who know what's going on around the town, and that's important.

'With some of the other chains you get the impression they might have come from Auckland', Duffy said.

'They're also close to town, unlike say Hamilton, where the big box retailers relocated to the fringe of the city, and so we get people coming from Marlborough because they can easily wander around these stores and then drop into coffee shops and art galleries,' he said.

Smiths recent profit report showed a dip in sales from $215 million to $206m due to shop closures in Queenstown and Gisborne reducing the total number to 32. The previous year it closed shops in Ngauranga Gorge, Wellington and Riccarton in Christchurch.

Other retailers have also fought to maintain sales growth with Harvey Norman's recent accounts showing a 1.6 per cent revenue rise from its 39 shops.

Appliance retailer Noel Leeming, owned by The Warehouse Group, was ahead with 8 per cent growth in turnover from 74 stores, boosted by the purchase of Appliance Shed's three stores in Auckland.

Harvey Norman also has stores in many of the regional towns that have been Smiths' heartland, while all but one of Freedom Furniture's 15 stores are in the North Island, and depends on big loans from its Australian parent company.

Consultant Chris Wilkinson of First Retail Group said despite the different dynamics of the retailers based on different ownerships, they all occupied important places in their communities.

'Smiths stores are part of the fabric of many regional towns so we want them to survive and thrive. A local offer keeps spending in town. If they leave these areas the stores are unlikely to be replaced, so this would leave a big gap in these centres,' Wilkinson said.

'Given the increase in offshore retailers hitting our shores it would be a pity if our homegrown brands couldn't compete.'

First Retail Group managing director Chris Wilkinson says local firms have a strong place in New Zealand's retail fabric.

Wilkinson said the brand sat in a middle-ground and seemed little understood by consumers where it didn't have a history. Competitors sometimes gave the impression they were smarter and dynamic.

The main initiative by Smiths in recent years had been its Furniture City acquisition in Auckland.

'With an old company there are entrenched behaviours, cultures and processes, and these take time to turn around, but retail requires increasing agility.

'How will Smiths appeal to younger, increasingly affluent and aspirational shoppers? I see a future in a more refined model, tighter and more differentiated,' Wilkinson said.

Consultants at RCG were helping Smiths with its turnaround, and managing director John Long highlighted the long life and durability of the brand.

'Big box retailing is beset with challenges whereas smaller retailers come and go without so much notice. It's a very volatile market,' Long said.

Smiths managing director Roy Campbell said the company was on track as evident by its latest profit result – a reduced after-tax loss of $1.7 million compared with the previous year's $7.2m.

Retail sales were softer in the second half of the financial year to April 30.

Until Smiths returns to better health it won't be paying a dividend to shareholders, and the 30 cents a share value has a long way to get back to the 70c of two years ago.

Chief executive Roy Campbell says a Smiths City customer is anyone who has a home.

Campbell said Smiths was well aware of regional differences in customer behaviour and tastes – the Auckland stores were catering for a more diverse and urbanised population than smaller regional centres.

'Price will never be a sustainable point of difference for the company. We must deliver a compelling shopping experience,' Campbell said.

But Smiths had lifted its revenue in Auckland, with equal challenges coming from the more mature market in Christchurch, he said.

Online trading had been a star performer, especially for electronic items, and showed Smiths was a solid, dependable and trustable brand, he said.

'We're working to become more relevant. Our customers are anyone who has a home.'