The Warehouse's poor performance: Is it time for fresh board leadership?
Sunday, 8 December 2024
How many years at the top is too many? That’s the question presented as The Warehouse Group looks for a new CEO and embarks on a new strategy ‒ with a chairperson who has been with the company since 2016 and had an earlier stint on the board prior to that.
Warehouse Group chair Dame Joan Withers has chaired the board of the NZX-listed company for eight years, mainly coinciding with the tenure of CEO Nick Grayston (2015 to 2024) but also now with John Journee, the current interim CEO.
She’s helmed the company through a range of economic and financial conditions. There have been highs and lows ‒ but more recently, all-time lows.
The owner of chains The Warehouse, Warehouse Stationary and Noel Leeming has found itself in dire straits in recent years, due to economic factors and its product offering falling out of favour with shoppers.
In the year to July 28, it reported its first net loss in over 10 years ‒ a $54.2 million hit to the books associated with the sale of Torpedo7.
Earnings plunged by more than 280%, and sales revenue declined by 6.2% to $3 billion in the year.
At the time Withers called the year “one of the most challenging” in the retail company’s 42-year history. But the truth is the company’s financial position has been sliding for years, excluding the anomaly bumper two years it experienced due to increased demand through the pandemic in 2021 and 2022.
Withers is retiring in November 2025, something she first signalled in 2022 to give the company plenty of time to prepare. But given the general long-term decline, and a new CEO and strategy to try to pull the company out of the clag, market chatter suggests some believe it would be better to make an appointment of a new chairperson at the same time as well.
Warehouse Group shares are currently trading at $1.04 a piece, valuing the company at about $360m.
During the peak of Covid, in 2021, its stock was trading about $4 and worth $1.4b - having recovered from a low in March 2020 when its value tumbled to $500m. It is trading well below that today, although it has recovered slightly from $329m in July.
In its heyday ‒ 2002 and 2007 ‒ the company was worth $2.2b. It has experienced a steady decrease in value since the Global Financial Crisis in 2009, excluding the Covid bump.
Sources that spoke to The Post on the condition of anonymity said it was high time the company appointed new leadership with a new vision and fresh ideas.
One source, echoing others, says of four different CEOs from Greg Muir, Ian Morris, Mark Powell, and Nick Grayson, prior to interim CEO Journee, none could get the company strategy quite right.
Withers’ board stints have traversed many of these.
“The Warehouse has been sliding for years and years in terms of value, market share and profitability. There comes a time when [enough is enough],” says the source.
“They've either been terribly unlucky with the last four managing directors and made four very poor decisions, or there's something else in that organisation that's stopped the managing directors from doing what they want to do.
“The board sets the strategy. The board picks the managing director. The board signs off on every major capex that they're contemplating. The board does all that, and the board is Joan,” said the source, who has himself been in retailing for decades.
Global research suggests an average tenure of between nine and 12 years is accepted of a chair, given governance is centred around steering from a long term perspective.
The average tenure of a director across the NZX is six-and-a-half years.
Oliver Mander of the NZ Shareholders’ Association says that in an ideal world a company would get a new chief executive and chair at different times ‒ and ideally a new chair before appointing a new CEO.
But while the Warehouse’s recent performance has been poor, Mander says there was nothing to suggest its board was dysfunctional or wasn't aligned.
“If you look at it on paper, it is a high quality board. They are very clear and upfront about their disclosures, they're very clear about the skills that they have and how they interrelate with each other, and there's clear evidence of a succession plan unfolding.
“We saw the resignation of Julia Raue earlier in the year, she was replaced with Tony Carter coming into the role as a director. This highlights the fact that this is not necessarily a badly governed company. It is a company that’s gone through tough times,” Mander told the Star-Times.
“One of the key roles of the board is to appoint the CEO and hold the CEO to account, and we've seen the board take some dramatic steps this year, in terms of Nick Grayson leaving the company, and the board actually putting up one of their own, John Journee, into that acting role with a view of getting the company back on track while creating some focus for the business ‒ that is a marked change from the strategy at play before.”
Mander says the company has been upfront with shareholders about the business’ state of affairs and determined to do something about it. “The fact that they've made key decisions in the last 12 months tells you that they're really conscious of the performance of the business.
“It's a tough question in terms of where's the line of being held accountable for poor performance as opposed to repaying the actions and steps required to fix it.
“Is it enough? Don't know. Is the damage irreparable? I guess no one knows that either. It will be really interesting to see how the company evolves over the next 12 months.
“Is it on its last legs or has it now got the bones in place to affect a really strong recovery, that's something investors will be looking out for.”
Withers acknowledges concerns about whether the The Warehouse needed a complete overhaul in leadership, calling the question “fair” for people to ask.
However, she says she personally thought nine years as chair was reasonable ‒ the longest she has continuously sat on a company board, Auckland Airport, was 13 years ‒ and says she signalled her intention to retire well in advance.
Withers acknowledges the missteps of The Warehouse on strategy, but says she could not take responsibility for acquisitions that had not worked out ‒ those like Torpedo7 that were bought into the fold before her time.
She says the board had acted swiftly to make necessary changes ‒ and was confident that the group had the talent in place to execute a turnaround.
“We still get one and a half million Kiwis through our doors every single week. What they need is excitement when they come in, and certainly in homeware and apparel we lost that. We're getting our mojo back up, and if you go into stores now you see a difference immediately. We're managing through the success we've had in terms of our grocery offering, which is driving 25% of Red Shed sales but in a lower margin. We now have to excite people and engineer products that we can give them fabulous quality at a great price point. That's what we're focused on, and I am enormously optimistic about the future.”
Withers says it was her expectation that a permanent CEO would be appointed before her time as chair came to an end. The board will be “looking at a long list of options” before Christmas.
She anticipates a permanent CEO will be appointed in the first-half of the next calendar year.
She says she will have little say on who replaces her as the next chair.
“The board holds itself accountable for what has happened to shareholder value. Over the last 10 or 12 months, the board has certainly been reflecting on what went right, what went wrong, what we could have done differently, and that is absolutely appropriate.
“This is a very difficult training environment and the Warehouse Group is not alone in terms of its share price performance or its profitability, albeit we did have an extraordinarily bad year [in the 2024 financial year]. There were strategic foot faults that were made. Things like embarking on an omni-channel strategy ‒ which we believed at the time was existentially important to The Warehouse, given the likelihood of Amazon coming into the New Zealand market; they'd gone into Australia and were massively ramping up their GMV in that market. So we embarked on that strategy, and what happened as a result of that was there was less emphasis put on stores, and in the process we lost some market share in key categories such as homeware and apparel.
“Most people would have anticipated Amazon would have come in. Online sales have reverted to the trajectory they were already going on so life hasn’t translated in the way that we thought it would, but there is definite culpability from all of us and we take accountability, although it's operationally, that we lost focus on the core brands.
“We acted very quickly in early 2024 in terms of changing track. The board has taken responsibility for making sure that we have changed our strategic direction, and there is now focus on the core brands,” says Withers.
“I have rolled my sleeves up. I'm doing everything I can to support John Journee and the board is working assiduously to make sure that we assist in whatever way we can, but it is a fair question in terms of the shareholder value that has been destroyed.
“Some of it is due to the macro-economic environment, some of it is due to operational performance. We can't reach in beyond the CEO and the leadership team in terms of operational performance, but some of it is due to strategic foot faults, and I take full accountability for that.”
Withers says she was proud of her strong track record as a chair, and she intended to see out her term.
“I'm personally quite proud of the record I have of being a chair and leading superb CEOs, including my track record outside The Warehouse. At Auckland Airport as chair, I had Simon Moutter as managing director before he went back to Spark, and Adrian Littlewood. At Mercury, Fraser Whineray, TVNZ, Kevin Kenrick; all of those were outstanding chief executives. It's one of the things I am most reflective about as I look back on my governance career is the importance of being able to find and retain great CEOs.”