Tough times in retail, but Nick Grayston just couldn’t transform the Warehouse: analysts

Tuesday, 21 May 2024

Warehouse Group chief executive Nick Grayston has left the retail company, and, if what analysts say is anything to go by, it could be a good move for general merchandiser.

On Friday, Warehouse Group chair Joan Withers announced to the stock market that Grayston, who had been with the company since 2016, would step down “effective immediately”.

John Journee took over the reigns as interim CEO on Monday. A search is under way for a permanent replacement.

The company that operates The Warehouse, Warehouse Stationery, Noel Leeming and up until recently, Torpedo7, has had a tumultuous run under Grayston, particularly over the past five years.

Under Grayston, The Warehouse Group has expanded into groceries. He has been outspoken about the lack of access to wholesale supply at fair prices and the Government’s efforts (or lack of) to bring more competition to the grocery sector.

But investors have been left disappointed with the group’s lacklustre performance.

Over the last 12 months, Warehouse Group shares are down almost 30%.

The group announced a half-year loss of $27.3 million in March, and earlier this month it reported sales in the third quarter of its financial year, which ended on April 28, were down 9.2% on the same period last year.

Harbour Assets Management research analyst Shane Solly said investor returns have been poor reflecting increased competition from the likes of Kmart, the impact of Covid, and some strategy decisions that have not worked.

Earlier in the year, Torpedo7 was flicked off for a mere $1, and just this month the group announced its intention to shut down its e-commerce venture TheMarket come June.

Greg Smith, head of retail at Devon Funds, said given its recent sales downgrade, the upcoming closure of The Market.com, and the selling of Torpedo 7, there was perhaps some inevitability about Grayston’s resignation.

“The Warehouse has been struggling for some time and before Covid,” Smith said, adding that the group had lost market share to its biggest competitor, Kmart.

“The Warehouse has arguably lost its connection with customers, and there is real confusion over the proposition. Why do people go to the Warehouse?”

It was also grappling with the perception that goods bought from the Warehouse goods were of poor quality, Smith said.

“Nick Grayston has been praised for his work on sustainability and agile work practices but ultimately his card will be marked by investors by the share price more than halving during his tenure.”

Mohandeep Singh of Craigs Investment Partners echoed the same sentiment.

He said there had been 25 CEO changes recorded on the NZX since Covid, and an almost eight-year tenure with the company was a good run.

'[Grayston] has had the wildest ride, some of the best days of the Warehouse, down to the worst now,' said Singh.

'Retail spending in total is slowing, and to some degree The Warehouse Group is just along for the ride.

'Have they made some missteps as well? Yeah, I would say, they have. They had a good go at Torpedo7 and that hasn't worked well so you have to be critical of the CEO and management teams; their job is to be capital allocators on behalf of shareholders and if you allocate that capital to the wrong parts of your business, if you're strategy is wrong, then you have to look back; selling Torpedo7 for $1 and some of the rolls out that didn't work; TheMarket, there are parts of the business that clearly underperformed and where the strategy missed a beat.'

Retail commentator Chris Wilkinson said he believed the poor performance of The Warehouse Group was a sign of the retail times, and not a representation of mis-management. Not everyone agrees with that sentiment, though.

“A lot happened in his tenure, and going forward, shareholders are looking for some answers,” Wilkinson said. “With what they’ve done recently, there’s not too much left to pull out of the bag.”

Grayston had found himself in an incredibly tough situation with the legacy retailer failing to transform experientially, while its biggest rival Kmart had “transformed metaphorically” to become almost trendy among a certain demographic, said Wilkinson.

“Almost all businesses in that space are having challenges right now. The sector has seen a lot more competition, both from within that department store sector and even the likes of Mitre 10 and Bunnings, who are now selling products that cross over, that they wouldn’t have sold in the past; whether it be pet care equipment or cleaning products, these sector categories are cannibalising each other.

“The Warehouse’s traditional retail model has really struggled. People consider it a functional retailer whereas when you walk into a Kmart you are inspired because other than the low prices, their ranges are representative of the likes of IKEA, and almost all of their product is their own product. Whereas The Warehouse still has a lot of product that it is buying from others,” he said.

“It certainly has transformed in some of its ranges. Grayston took it quite strongly into its apparel, where it always has done quite well. He’s also tried steering it towards health and beauty products. But again, during that same tenure, we’ve seen Chemist Warehouse move into the market, and it has massive in roads.”

Wilkinson said there had been a lot of changes in senior management of retail businesses like the Warehouse overseas, along with lots of CEO changes to companies listed on the NZX, since 2020.

On Friday, Warehouse Group chair Joan Withers said Grayston had led the retailer through a period of significant change in the industry, but “new direction” was needed for the company.

“His focus on sustainability, adopting agile ways of working, navigating the challenges of Covid and initiating the significant and successful programme of critical infrastructure upgrades have been hallmarks of transformation of The Warehouse Group in the last five years,” Withers said.

“However, as we look to the future, we have agreed a change in direction is necessary for the company and that it needs fresh energy to execute.”

Current temporary CEO Journee has been with Warehouse Group for 15 years, and has held roles including as chief executive of Noel Leeming. He has been on the board since 2013.