Online importance grows for retailers

The Warehouse chief executive Mark Powell will continue to invest in an online presence. Photo by...
The Warehouse chief executive Mark Powell will continue to invest in an online presence. Photo by the NZ Herald.
The rapid growth of retailers' online sales has become increasingly important and online spending was up 15% during 2013, to $3.7 billion.

While some retailers are grasping the nettle and achieving strong online sales growth, others are still struggling to boost their online business.

Forsyth Barr broker Suzanne Kinnaird said online retailing's rapid growth to $3.7 billion last year was driving major structural changes to the traditional retail model.

''We're expecting further strong growth in online retailing in the medium-term, particularly as technology improves and geographical barriers continue to be eroded,'' she said.

Craigs Investment Partners broker Peter McIntyre said online sales were improving earnings and margins for many retailers, with emphasis on mid-tier retailers as opposed to high-end fashion or low-cost retailers.

''The Warehouse has a good strategy of making small [online company] acquisitions to work up into the larger business,'' he said.

Forsyth Barr research estimated sporting goods and apparel retailer Kathmandu was the best placed listed retailer to benefit from the online channel, while Hallenstein Glassons was most at risk.

Ms Kinnaird said the ''borderless nature of online shopping'' pegged Hallenstein against strong global ''fast fashion retailers'', who have considerable benefits of scale.

Hallensteins was hit by a surprise December sales slump and slashed its half-year after-tax profit guidance, for the second time in as many months, by 40%.

For online growth, Ms Kinnaird said ''we include The Warehouse group as the best placed to positively surprise.''

The Warehouse yesterday said Christmas trading across the group was ''strong'', and while offering up a slight profit downgrade, emphasised online sales were ''critical'' to The Warehouse group's success, chief executive Mark Powell said. ''Online continues to be a significant game changer in the retail market,'' he said.

In line with its strategy to be the leading multi-channel retailer in the country, The Warehouse group had continued to invest in growing its online businesses with investments in infrastructure, resources, marketing and customer acquisitions, Mr Powell said.

''This [online] investment is critical to the long-term success of The Warehouse group,'' he said.

Ms Kinnaird said the ''wild card'' for online growth was

The Warehouse group and it had been aggressively growing its exposure to online retailing.

''There is potential for it to positively surprise through bolt-on acquisitions or internally-developed websites in new categories which leverage off its core sourcing capabilities,'' Mr Kinnaird said.

Of the three retailers researched, Ms Kinnaird said the best placed to benefit was Kathmandu.

The company had strong control of a single brand in which to enter new markets through online channels and was also implementing new systems this year to further support online growth.

For The Warehouse's first-half 2014 trading, Mr Powell said in a market update yesterday that while there had been total sales growth of 5% and recovery in gross margins, the strong Christmas result would not off-set profit margin issues at the Red Sheds.

He downgraded previous guidance of after tax profit by about 10% to a range of $46 million to $48 million, but said funding structures and property ownership accounted for about half of the reduction.

''Significant investment'' had been required for Red Shed business and new retail acquisitions - Noel Leeming and a variety of online retailers - which prompted an increase in funding costs and reduction in rental income, Mr Powell said.

The Warehouse

• 92 Warehouse stores, 75 Noel Leeming , 61 Warehouse Stationery stores in NZ.

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Source: The Warehouse


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