Last week we commented on our visit to the USA, and on the decline of bookshops in San Francisco – with both Borders and Barnes & Noble gone from the central city. So is this an isolated case, and what does the trend suggest for New Zealand? Well, in the past week we have had the opportunity to explore this observation a little more. It is a fact, bookshops are really in decline in the States. There are few in existence and other options have simply taken over. Barnes & Noble is the only surviving nationwide chain, with nearly 700 stores across the US. There are a couple of smaller chains which don’t cover the whole country, such as Books-A-Million (250 stores) and Half Price Books (120 stores). Keep in mind that this is a country with 70 times as many people as New Zealand!

So what does this signal for New Zealand? Well it’s all bad news in our view. In New Zealand, we’ve got Whitcoulls with some 50 stores, and Paper Plus Group – this includes Paper Plus with over 100 stores and Take Note with almost 50 stores. Paper Plus Group stores often include Postshop, Kiwibank and Lotto, and these are all convenience activities which keep customers coming back to the store regularly. There will be great pressure on Whitcoulls, as a brand, to survive in its present form, and the ultimate winner could be Paper Plus Group; however, these stores rely heavily on the performance of their individual operators. In any event some serious signals exist for this previously dominant retail category.

The Retail Trade Survey for the March 2012 quarter came out today, and judging from the coverage on the New Zealand Herald and NBR websites, the results are being treated as a bit negative, with seasonally adjusted sales figures down, as well as “volumes” – estimates of the amount of products actually being sold. However, it’s really not bad news to our way of thinking. The seasonally adjusted results are compared to the previous quarter, December 2011, which included higher sales during the Rugby World Cup.

We prefer not to use the seasonally adjusted figures, but instead compare this quarter to the same time last year, so March 2012 to March 2011. Based on this, “core” sales were up 3.4% and volumes were up 3.2%. This isn’t great, but it’s not too bad, and it’s better than the year-on-year growth we were getting before the World Cup.

On a simpler note the cost of petrol in California is USD $4.30 a gallon, or around NZD $1.40 a litre in New Zealand dollars. It’s even cheaper in the rest of the States. In Australia, drivers pay around NZD $1.95 a litre. In New Zealand, we’re currently paying $2.20 a litre. The differences are due to taxes – the US has just about the lowest rates of petrol tax in the world, and even New Zealand has lower rates than most of the OECD. Something to be thankful for on the one hand, but on the other, maybe we have to look out for rises in the future?

One thing we can be quite sure of is that we’re going to have to get used to petrol being above $2 a litre. Prices could certainly go back below this level, but it probably won’t be for long. Projections from the Ministry of Economic Development suggest that prices are going to keep rising faster than inflation over the next twenty years. Something to keep in mind next time you’re buying a car!

SHAREWATCH – THE WAREHOUSE GROUP

The Warehouse Group has just announced its third quarter sales, covering February, March and April. Sales at the “red shed” The Warehouse stores were up 3.5% on the same period last year, at $338.4 million. Most departments did well, with the exception of apparel which was affected by the mild summer weather.

Sales at the “blue shed” Warehouse Stationery stores rose 2.4% to $55.8 million, and the company also pointed to growth in market share and at the “same store” level.

Overall, these results were quite positive and give further evidence that the NZ retail market is continuing to recover, if a little slowly!

IN THE PRESS

LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 7 – 14TH MAY 2012

Countdown unveils iPhone shopping app
Countdown has jumped on the app bandwagon by offering an iPhone shopping program to help customers negotiate its supermarkets. The free app, a New Zealand-first, combines digital shopping lists with a barcode scanning capability; providing prices, recipes and an online shopping function. Countdown’s Bridget Lamont said supermarket retailing continued to be transformed through technology.
(Source: NZ Herald)

Aussie online shoe retailer crosses ditch
One of Australia’s largest online shoe retailers has got it’s eye on Kiwi consumers. Style Tread’s New Zealand website launched last week. Can local retailers afford to disregard the challenges posed by rising levels of web-based rivalry? According to managing director Mark Rowland, the Sydney-based Style Tread has seen remarkable growth since its establishment 18 months ago.
(Source: NZ Herald)

We all have expectations, whether they be business or personal. A respected and successful client of RCG, Farro, opened in Hamilton at Te Awa, The Base last year. Meantime, the owners also wanted to launch a new brand called Trader Jacks. Considerable time was spent on the branding, retail offering and layout. It was decided that the Hamilton demographic suited the new brand and offering so the Farro store was accordingly rebranded as Trader Jacks. Pretty straightforward. It is also intended to gradually roll out more of the new Trader Jacks format, as a “sister” brand to Farro.

The media in Hamilton interpreted this as Farro leaving town. Not so, it was simply a change that suited the demographic and the new launch. It brings to mind, however, how we as individuals and consumers expect there never to be change and if there is, we invariably interpret it as negative rather than positive.

This year RCG has decided again to undertake its review of shopping centres, with a view to rating the major centres throughout New Zealand and identifying the top centre. We will also consider the centre that we believe has the best prospects for the future, taking into account growth both in spend and population numbers. To achieve all this we are going on a tour to visit each centre. This will happen in May and June, and the results will be published in our Retail Examiner in July. If any centre owners wish to provide us with detail in advance, please email john.Polkinghorne@rcg.co.nz and give him some facts about your trading results. If not we will assess from our own database.

We are also taking another trip to the USA, to identify what changes there are in retail and property. Hopefully we will give feedback and identify how RCG can use any new changes to influence retail planning and design in New Zealand and help our New Zealand clients.

We have no expectations as to what the results may be. The point is that looking ahead is what it’s all about. We would rather forget expectations and concentrate on results. As an early indication, we’re seeing that San Francisco now has no major bookshops in the CBD. The two Borders stores have closed down, along with all the other Borders stores across the country. There used to be a Barnes & Noble store at Fisherman’s Wharf, but now this too has closed. Not a good look for that industry!

SHAREWATCH – HEELYS INCORPORATED

Expectations play a major role in the share market, and things don’t always pan out the way investors expect. The NASDAQ-listed Heelys, Inc. makes shoes with wheels in the sole, and we’ve probably all seen the occasional child racing around on them. The company listed in 2006, with shares initially expected to sell for USD $16 to $18. Instead, investors jumped at the chance to buy shares in Heelys, pushing the IPO price to $21. When share trading began, people were bidding over $30 a share and the price peaked at almost $40 a share.
Unfortunately, Heelys never really delivered on the hype, and by early 2008 shares were trading at less than $5, where they have stayed ever since. A warning that it’s pretty important to have realistic expectations!

IN THE PRESS

LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 30 – 7TH MAY 2012

Pepsi rekindles 80’s ad partnership
PepsiCo has revealed a deal with the estate of Michael Jackson to use the late pop star’s image for its new global marketing campaign. The promotion will differ by country but will include a TV ad, special edition cans covered in Jackson’s image and chances to download remixes of some of Jackson’s number ones. Pepsi, which first united with Jackson in 1983, did not reveal the terms of its deal.
(Source: NZ Herald)

Oroton opens up to new things
Australia’s long standing accessories retailer, Oroton, is moving into the clothing market after launching its first ever apparel collection in Sydney last week. Oroton, which has developed over 50 stores since its foundation in 1938, presented simple, monochrome, and tailored clothing for women alongside its usual accessories.
(Source: Inside Retailing)

Zara looks to Oxford St property
Fashion chain Zara is looking to open a record fifth store in London’s Oxford St, reinforcing the resilient demand for prime retail property in the capital. Zara, owned by the Spanish giant Inditex, has three shops in the area and has signed a fourth in the street’s Park House development, which opens next year.
(Source: NZ Herald)

New Kathmandu centre in Christchurch, a show of faith
A new national distribution centre has been finished for quake-hit retailer Kathmandu in Christchurch. The retailer last week took ownership of a Woolston warehouse only marginally smaller than a football field, many saw this move as a big business showing faith in the city.
(Source: NZ Herald)

The recent profit results announced by JB Hi Fi were headlined as “Profit Downturn”. Why is it that a profit of over $100 million can be seen as a downside? Surely investors would be happy to have a profit even though there was a small decline on the previous year’s results. The supporting commentary from JB Hi Fi said that the decline in profit was due to a decline in margins, as the company was heavily discounting to achieve sales. Nothing wrong with any of this, in tough times the Group have focussed on what they need to do to satisfy trading results. It was a similar message from The Warehouse with their 6-months results. Investors will have confidence in companies that make a profit, albeit down on the previous year.

The results demonstrate just how focused companies are today on giving the right message to their clients/shareholders. The recent collapse of many finance companies, and the subsequent prosecution of various directors, has demonstrated that being forthright about company results and what they mean is paramount in the public arena. Anything less than honesty brings about suspicion and uncertainty, so we can expect to see more honesty as to the performance of companies, and even a certain level of cautiousness from most companies in the future.

We move around the country regularly, particularly into the regional areas. What does amaze us is the level of activity that is emerging. Cities like Hamilton, Rotorua, Tauranga (to a lesser extent), and Napier/Hastings are really undertaking some major redevelopment, most of which goes unnoticed. If you take a trip to these cities you will realise the investment that has been undertaken. It also identifies who the investors are. In Hamilton, Tainui have been active, particularly with their The Base development, and in Rotorua Ngati Whakaue through their wholly-owned Pukeroa Oruawhata Holdings have also been very active. The focus for both groups has been on retail, and both organisations have demonstrated that very good quality retail development can be achieved by property owners outside of the major shopping centre owners such as Westfield or Kiwi. It also demonstrates how independent iwi groups can really transform their land into successful developments that significantly benefit the local community. These developments don’t happen overnight. They are carefully planned years in advance, and when the time is right commercially the development is undertaken.

This leads us back to Christchurch. The demolition of much-loved buildings must be seen as an opportunity to take time over the rebuild and not to rush into attempting to replace with what has been taken too quickly. Like the two examples above, development of substance takes time, and some tenants will not be able to afford to return to the CBD. The focus, therefore, must be on affordability for tenants to return to the CBD. As time goes by, tenants will get used to new pastures in affordable accommodation. “Affordability” will be the catch cry for those who may consider returning to the Christchurch CBD, and it will take time to convert them.

SHAREWATCH – WOOLWORTHS LIMITED

Woolworths Limited is the owner of the Countdown supermarket chain, the Dick Smith electronics chain (which it is trying to sell), and Australian retail businesses such as Woolworths, Big W, and Dan Murphy’s. The company has recently released its third quarter results (January to March 2012).

Countdown reported “pleasing comparable sales figures” and market share growth against its key competitor, Foodstuffs. Sales reached NZD $1.4 billion for the quarter, up 2.9%, with food price inflation within the stores estimated at 0.8%. In the nine months between July 2011 and March 2012, sales totalled $4.3 billion, up 3.0% on the previous year.

IN THE PRESS

LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 23 – 30TH APRIL 2012

Robots strengthen online shopping faith
Fashion followers have another cause to switch brick-and-mortar shops for online retailers: a company in tech-smart Estonia has created a way to let you try on new clothes from your own computer. The Fits.me company seeks to stop the guessing game about size and spare online shops heaps of returned goods thanks to shape-shifting robotic mannequins – which can grow from slim to muscular in moments – combined with a technology invented by Estonian universities.
(Source: Inside Retailing)

Auckland retail whispered to keep on the up
Auckland shopping area could develop by 70,000sq m yearly in the next two decades, equal to about 10 football fields a year. Floorspace will increase from 1.84 million sq m to 2.46 million sq m by 2021, according to a comprehensive analysis by Adam Thompson, of Development Economics, who identified Auckland International Airport, Newmarket, Flat Bush, Westgate and Silverdale as suitable for further shops.
(Source: NZ Herald)

Postie Plus resigns Babycity
Christchurch-based Postie Plus Group is to sell its chain of Babycity stores as it rationalises its retail manoeuvres in readiness for development.
(Source: Inside Retailing)

Taiwan’s biggest Burberry boutique yet
British luxury brand Burberry has opened it’s first flagship store in Taiwan and it’s largest in the Asia-Pacific. The 14,800 sqft store, situated on the fourth level of 101 shopping centre in Taipei, is the brand’s 22nd store in Taiwan.
(Source: Inside Retailing)

Summerset talks up $60m retirement village spend
Newly-listed retirement village developer and operator Summerset said it plans almost $60 million worth of new expansions for this year. Chief executive Norah Barlow said that new building activity would take place in Summerset villages in Hamilton, Hastings, Nelson and Warkworth.
(Source: NZ Herald)

As a nation, we certainly have some diverse attitudes when it comes to major property issues. The Crafar Farms purchase has drawn widespread comment as to the potential negatives of the deal. The same can be said of the “proposed” convention centre development by Sky City, with the potential trade-off being more pokie machines in the casino. The media have had a field day in considering the negatives of both.

If we quickly review these deals, it’s apparent that both can and should benefit the country. The Crafar Farms deal is done and dusted, and what will come out of that will be jobs and a stabilised farming environment. The reality is that the land on which the farms sit will always stay here, it is a commodity that you cannot remove and further, it should always remain farmland. As we said weeks ago, the best deal purchased the farms, not just the “New Zealand” deal. That’s the way it should be.

As for the proposed Sky City convention centre in Auckland, the debate is not so much that Sky City are proposing to pay for the total build, and as a result there will be significant financial benefits to Auckland and the country, but rather the fact that more pokies will be installed. Well, so what? How many of us go to church if we don’t want to? Nobody forces anybody to go anywhere, it’s that simple. So what’s the point? It’s a good deal whichever way you look at it. Why as a country do we try and blame the product for the fault rather than the user? Examples are plentiful, the smoker who won’t quit, the soft drink consumer who drinks the product excessively, and the fundraiser who can’t keep his hands out of the till! Let’s not use the inability of a minority to abide, to the detriment of the majority to benefit.

A few more down-to-earth items that caught our attention this week. The irony of the fact that the real estate profession seems to benefit from both the high and lows of the property market, by way of achieving fees from doing the deal the first time round, and then when the owner goes into receivership the same agents sells the property again! Something about that just does not ring true. Similarly the NBR property comment as to “retail leakage” caught our attention. This is a widely used term by economists and retail analysts when describing the potential for a proposed retail development. The NBR comment hit the nail on the head. The terminology can be very misleading when it is used to compare close environments which are no more than 10 minutes’ drive away from like and competitive developments. It’s almost impossible to define the measure of leakage in that case due to the proximity of like developments. The term is difficult for Environment Courts to completely understand, as the evidence tabled normally bamboozles the reader. It may be time for the term to be better defined, as the consultants involved have to explain the outcomes in a language that all people can understand.

Finally, the past week threw up a few tips and a few tragedies. The receivership of Payless came into the latter category. It does not make us happy to see a retailer which has been around a while go into receivership, but it is becoming more common, and unless a watchful eye is kept on the sales and profit performance of any retailer, together with the merchandise being sold, then the guillotine is inevitable. Word has it that footwear retailer Hannahs is about to be sold. This won’t be a bad thing as it has been languishing in no-man’s-land for some years. The purchaser will need to invigorate the brand and to dump some of the less favourable locations.

An interesting assortment this week, from farms, to convention centres, to real estate, to plastics and footwear. They all have something in common, and that is “buyers” – if you don’t have “buyers” then you have no viability!

SHAREWATCH – POSTIE PLUS GROUP

Postie Plus Group is one of the smaller retailers on the NZX, owning the Postie and Babycity retail chains. The group has recently announced plans to sell off the Babycity stores for $4.1 million, subject to shareholder approval – which seems very likely given that PPG’s share price has risen since the announcement.
PPG plans to use the cash from this sale, and probably a capital raising later in the year, to buy another apparel chain. Further details are likely to emerge after the shareholders vote on the Babycity sale in a couple of weeks.

IN THE PRESS

LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 16 – 23RD APRIL 2012

UK brands move to catch online Aussies
Aurora Fashions, the UK group rearing women’s fashion brands Warehouse London and Oasis, will next month launch its first e-commerce site in Australia. www.andotherbrands.com, geared to start trading May 15, will have a ‘shared basket’, enabling consumers to shop both brands in the one transaction in a combined checkout. Aurora reasons that this method will maximize cross-selling and the brands will benefit from shared traffic whilst the customer can expect “a stronger, more aggregated product offering to choose from”.
(Source: Inside Retailing)

Retail centre re-shaping Mt Roskill
NMt Roskill’s retail centre stores are popping up fast, but not fast enough say real estate experts. The new 10,000sq m shopping area on Stoddard Rd has over 20 premises currently under development such as, McDonald’s, The Warehouse, and Countdown, however the area still needs more shops, and soon.
(Source: NZ Herald)

Westfield lets go eight US centres
Westfield Group has begun arrangements to divest eight non-core shopping centres in the US for US$1.154 billion. Westfield Group Co-CEO Peter Lowy said “The proceeds from the transactions will initially pay down corporate debt and then be redeployed in higher return redevelopment opportunities in the US, including the World Trade Center,”
(Source: Inside Retailing)

Last week we mentioned the fact that Bunning’s had taken over the Mitre 10 store in Keri Keri, and questioned why or how this could be allowed to happen in a very competitive environment. As expected, Mitre 10 responded and confirmed that the local Mitre 10 member had signed a deal with Bunning’s without Mitre 10 being made aware in advance. This action is apparently unusual within the group as all arrangements as to the brand are carefully documented between the parties to ensure protection for both. The process did however make us think about the reliability of those we put our faith in. So what does that statement actually mean?

When we as companies, on one hand, or individuals on the other, enter into an agreement with another party, or an employer, the purpose of entering into such an agreement is to comply with the rules contained, and to do business together to the benefit of both. Imagine for a moment if a McDonalds franchisee decided to abandon the agreement he had with the holding company (Franchisor) and to personalise the business. This could be implemented if the franchisees real name was “McDonald”!!! It could happen and one day it might. It really is about the belief people have in their own ability, over the opportunity afforded to them by others to give them a start. It’s common in corporate organisations for individuals to believe that they could take the business away from the company they work for and to do it themselves for their own personal gain and profit. Again they forget how the business was acquired in the first place. Some try and soon discover that their personal brand is associated to the company and is not so valuable outside of that environment.

The same applies to individuals who whilst employed by a company extend their personal association with a client to feather their own nest, that is, to take the business away and operate it themselves. This has happened once at RCG, and despite the fact that it takes time and money to pursue individuals who do this, we are of the view that not to pursue it is simply admittance that there is no logic in signing an agreement. We may all just do business on a handshake like we used to 100 years ago. The introduction of employment contracts, franchises agreements, management contracts etc, were introduced to protect all parties not just one.

This past week, we have seen the potential move to increase maternity leave to 26 weeks. What this means is that companies will have to permit employees to be off work for 6 months. Think about that. If people are away from a business for that length of time, the impact, depending on the individual can be very significant. The cost is just one element; the other is the ability to retain a temporary person for a brief period with no long term ability to give them surety, and will the “maternity leave” employee actually return? They don’t have to.

We live in a strange world, where protection of rights goes beyond just signing a contract without understanding the impact of what we are signing.

SHAREWATCH – WATCH THIS SPACE

Keep an eye out for next weeks Sharewatch, right here.

IN THE PRESS

LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 10 – 16TH APRIL 2012

Ikea unpacks a neighbourhood
Ikea, the Swedish furniture hulk, is planning to build a whole town in the timeworn London industrial site, Strand East. Not far from the Olympic 2012 location the development is expected to be made up of a sizeable 1200 residential units, with the ability to house an estimated 6000 residents.
(Source: Inside Retailing)

All go for NZ’s newest city
The establishment of Marsden City in Ruakaka, has been given the green light by local authorities. Marsden City’s mixed-use consent will include commercial businesses, a retail shopping centre, residential high and medium-density, parklands, residential-compatible industry, and light and general industry.
(Source: NZ Herald)

Rainbow’s End gets a $3.5 million polish
New Zealand Experience, owners of Rainbow’s End amusement park, plans to spend $3.5 million advancing its ‘Castle Land’ area, which is expected to lift earnings when it reopens next Easter.
(Source: NZ Herald)

Trade Me gains OE
Trade Me, the online auction site owned by Fairfax Media, has signed a deal with e-commerce software company ChannelAdvisor. The agreement will allow online retailers from around the world to list products on Trade Me in time for Christmas.
(Source: NZ Herald)

There is so much activity in the marketplace that we could fill the NIB ten times over. Usually we prefer to focus on just a few key issues; however, this week is an exception, so here is a wider overview of activities over the past week and how we see them.

Bunnings released a story relative to their opening of a 2500 square metre store in Kerikeri. Quite innocuous some may say, but where is this store in Kerikeri? It turns out they are taking over the Mitre 10 store, and therefore the brand will change to Bunnings, but previous Mitre 10 customers surely will be retained by the new Bunnings? This is the second time that we can recall this has happened; the earlier occasion was in Wellington. So is this a sign that Mitre 10 are closing some stores and simply don’t care who takes them over? We doubt it, these two brands protect their market share robustly, and in fact battle for site possession. So it’s a bit odd that Mitre 10 would allow this to happen right under their noses. The DIY market will be watching this space with a great deal of interest. Meantime in Australia the “Masters” brand a new DIY concept owned by Woolworths has opened its first mighty mega store in Queensland and it is trading well. It’s the first of up to 100 similar stores that Woolworths intend to open.

Why are Woolworths venturing into DIY? They see a great opportunity, with the only real opposition in that country being Bunnings, and the potential share of the national DIY market is huge, hence the entry. However, the Bunnings brand is very effective and supported by a loyal consumer. Breaking that bond will not be easy. It proves however with the opening of more of these DIY major stores particularly in New Zealand how competitive retailing is in this country. No longer do the DIY stores just sell hardware, but a wide range of general merchandise. They are very competitive with traditional retailers and their product range, size, and competitive pricing will continue to grow. Progressive Enterprises in New Zealand, owned incidentally by Woolworths Australia, are also very active. They recently announced the decision to sell off four more of their supermarkets, and these will potentially be well received, particularly by syndicated property groups. Meanwhile Progressive is filling up the ex “Soho” hole in Ponsonby Auckland to make way for a new Countdown supermarket. This store should trade well considering its location in an affluent catchment.

The Kiwi Income Property Trust portfolio came under a bit of focus last week with costs for strengthening its properties in Christchurch and Wellington, creating a negative impact on thos property values, although the Auckland properties showed good growth in values to help offset the losses. This highlights, however, the recent focus by local bodies to ensure buildings are up to earthquake standard – which, in turn, has made many property owners very nervous. The focus is justified in every city, given the Christchurch experience, and there is no option but to undertake repairs to rectify the risk, or to simply abandon the building. Many buildings are affected and there will be more to come. Major companies have the funding to withstand the repair and renovation process but the impact on smaller investors will be significant. Furthermore, it isn’t just commercial investors that are affected – the problem extends to church and community groups, so the impact will be felt across the wider community. Add to this the cost of insurance and then the costs of making the buildings earthquake proof, and we are not out of the woods by any standard.

One final point on this subject is the potential for a claim or at best a review of the buildings in Christchurch which were designed and built over the past 20 years and which have faltered under the recent earthquakes. Would one not expect for the design to be worthy of withstanding these major events? Is this something that will come under review, as will the professionals who designed them?

To end this weeks commentary, it is appropriate to consider the fact that Pumpkin Patch announced it was going to sell its clothes on Amazon. If you look at Amazon, you will see that every few weeks new product is added. Pumpkin Patch whilst admitting that they don’t expect to see immediate growth, the move was strategic. What does that mean? It means they see this sales avenue as very important to their business going forward. It hasn’t gone unnoticed that the company has closed or is closing its stores in both the UK and the USA; an entry to Amazon will offset those two lost markets. Let’s not get too excited yet about the impact on national NZ retail sales from online retailing – it will take years for any impact to be felt on our domestic market, if at all. This was further emphasised by the number of consumers filling our shopping centres on Easter Monday: the closure of shops on Good Friday and Easter Sunday just increased the consumer appetite for shopping on Monday. Online retailing will never replace social contact.

SHAREWATCH – RESTAURANT BRANDS

Restaurant Brands owns the New Zealand rights to operate KFC, Pizza Hut and Starbucks. Recently, they’ve added the rights to roll out Carls Jr. as well. Restaurant Brands has just released its annual results for the year to February 2012. Sales declined $16 million to $308.9 million, with this being blamed on the Christchurch earthquake and the sell-down of Pizza Hut stores. Restaurant Brands’ profits were down 27% to $18.4 million, although this is still a pretty solid result.The program to sell down Pizza Hut stores is interesting – Restaurant Brands has the NZ master franchise for Pizza Hut but is allowed to sell stores to individual franchisees. Restaurant Brands will make money from selling these businesses and ongoing franchise fees. This will hopefully help the fortunes of the Pizza Hut chain, which has been struggling for years. Its two main competitors, Domino’s and Hell, both use a franchise model and this has proven to be an effective way of incentivising the people who run stores.

IN THE PRESS

LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 2 – 10TH APRIL 2012

Shoe-box retailer debate scaling up
Cameron Brewer, a councillor and chairman of Auckland City Council’s business advisory panel, spoke out recently on the CDB’s growing shoe-box retailer issue. “The council can’t have it both ways – that is promise a ‘world-class city centre,’ while at the same time continuing to sign off these tacky little retail spaces,” Brewer said.
(Source: NZ Herald)

Moshi Monsters makes big moves
Moshi Monsters, a social-networking and gaming franchise for kids, has surpassed expectations. Figures composed by toy industry analysts, NPD, confirm the Moshi licence is second in sales only to Star Wars, ahead of the Hello Kitty and Thomas the Tank Engine franchises. More than 60 million kids across 150 countries visit the Moshi Monsters website.
(Source: NZ Herald)

Pumpkin Patch, Amazon buddy up
Pumpkin Patch, Auckland based children’s clothing retailer, has teamed up with online retailer Amazon to trade its products in the UK, Germany and France, via the Amazon website.
(Source: Inside Retailing)

Double Down returns, at a cost
The notorious Double Down is set to make a return to KFC stores across New Zealand. Restaurant Brands chief executive Russell Creedy says the bun-less chicken burger will cameo on the menu for six weeks during the middle of this year, but due to the rise in ingredient prices the bun-less burger will cost extra than it did in 2011.
(Source: NZ Herald)

25% of 2012 has disappeared. Easter and Anzac Day will reduce the working days available in April by three and will reduce the shopping days available by two and a half. The normal Easter trading issues will, we are sure, emerge once again from those who want to see shops being permitted to open 365 days a year. We are not going to enter that debate, as we have voiced an opinion on that issue many times previously; however, what we have observed is that “productivity” has reduced markedly over recent years. Those of us in the workforce will know that when a holiday break arrives, most people take a few more hours off or even days at the same time, not holidays, just time off. It really is a fact of life. Watch this coming week and observe the people who leave early on Thursday to beat the traffic over Easter, or don’t come in on Tuesday or at best arrive late. So what? Well the amount of time spent actually working is probably closer in productivity to 30 hours a week rather than 40. Calculate that as an employer and the production time lost is very significant.

So how much energy should we put in to satisfy our employment contracts? The Auckland Ports debate is an example of what can be achieved by workers who remain vigilant in the pursuing of their goals. However when the goals affect customers and have a negative impact on the employer then it’s a “no win” situation for both parties. The majority of employers ensure their first priority is to pay their staff on time and treat them with respect. The same should apply both ways.

The challenge over the past few years has been to stay in business or retain employment dependent on your point of view. Recently, the Merivale Mall in Christchurch reopened the shops that had been closed for some weeks. These retailers were bursting with joy at being able to reopen, and just to be given the opportunity of trading again. Some retailers at Northlands Shopping Centre in Christchurch have had to close, and it is reported that they may not open again for another 18 months while repairs are undertaken. Imagine what these closures will do to families and business people who have relied on these retail premises to make their living. These two examples demonstrate the need for people to be able to work or to be given the opportunity to at least earn a living.

As we enter Easter week, and as we go on another round of shopping, eating and dining, give a thought for those less fortunate and maybe give a little more time to being productive. Happy Easter to all recipients, and good luck for the rest of the year.

SHAREWATCH – HALLENSTEIN GLASSON HOLDINGS

Hallenstein Glasson Holdings, the company behind the Hallensteins, Glassons and Storm apparel chains, released its interim results for the six months to January last week.

Sales were up 7.9% to $109 million, with improvements from all three chains – a solid result. Profits rose 26.5% to $9 million, and again there seemed to be improvements across the board.

According to the CEO, Hallenstein Glasson Holdings was able to achieve record sales levels over Christmas, despite a tricky retail environment. The company sees some challenges for the rest of the year – for example, cautious fiscal policy and reduced spending from the government. HGH has also warned that above-CPI rent increases are “increasingly making specialty retail in some centres a marginal proposition, and in common with other retailers we are carefully reviewing our store portfolio”.

IN THE PRESS

LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 26 – 2ND APRIL 2012

Kathmandu warms up Newmarket
After lengthily delays, Kathmandu has opened one of its largest New Zealand stores in Newmarket’s ex Supre space.
(Source: NZ Herald)

Tough talk for Marmite lovers
Sanitarium has recruited former All Blacks coach Sir Graham Henry to front a marketing campaign aimed at encouraging allegiance to its Marmite brand during the shortage that has been nicknamed “Marmageddon”.
(Source: NZ Herald)

Bunnings in $1.5b expansion
Hardware chain Bunnings has announced a $1.5 billion development plan it says will generate 6000 jobs over the next three years. The development spans New Zealand and Australia, and will increase store numbers by 85.
(Source: Inside Retailing)

Bowling balls substitute books at Metro Centre
Auckland’s Metro Centre, where Borders bookshop traded for several years, is getting new tenants including a bowling alley. Further entertainment based tenants are expected to open in the coming months.
(Source: NZ Herald)

The value of employees and the relevance of reward is topical this week, due to the public release of incomes for Chief Executives of companies and those working in the public sector. We all want to earn more for what we do. We can either dictate our own income by working for ourselves and therefore take the risk of investment versus return, or alternatively work for somebody else and be dictated by the salary we can negotiate. We believe that either path will produce rewards that we should be satisfied with. However, who is to say that the reward justifies the effort? The answer is pretty simple, it’s the “market” that dictates. However, its all a bit bizarre when we see people in energy companies receiving salaries well in excess of $1.0 million per annum together with other benefits. Energy is something that we all use and need; it’s a commodity that we cannot do without. So why reward so highly?

If we extend the discussion, what about the rewards for the local body/ government sector? How can the CEO of a regional town be paid close to $400,000 per annum? What do these people actually do to justify the level of salary paid? Well it really is out of our hands as individuals, but it seems difficult for us to compare these levels of salaries with our own, when we have to take risks and benefit or suffer as a result. So who drives the “market”? Demand effectively, and those who are prepared to work in the public sector. The problem we have is the level of effort versus the significant rewards! It just doesn’t seem to make sense. Are we wrong?

Then we have people who have been made bankrupt and are out in the workforce again making major decisions that affect the future of others. How does all that work? If they were so good how come they were made bankrupt? So plenty of questions and not it seems many answers. Energy companies should not be permitted to increase consumer charges and at the same time increase salary levels to the extent they have. We saw in Christchurch the reaction from consumers to what they believed was excessive rewards in a difficult economy. We agree that the “market dictates”, but when the market reacts negatively, it is time to take notice.

Meantime back to our core business. The recent focus on “online” shopping has generated debate, with retailers arguing that GST should still be charged when New Zealanders shop on overseas websites, to give a level playing field. So how big is this online business? We have annual retail sales in New Zealand of $53 billion. Online sales to overseas websites currently account for several hundred million dollars, so there is a long way to go before it becomes a serious threat to the retail industry, but if GST was applied to this sales volume, then Government would have a potential tax take of in the tens of millions, a sum not to be sneezed at. However online shopping is growing and more people are using the online format, and as we have illustrated previously certain retail sectors are at a greater risk than others. However, it will take time, if at all, to seriously affect bricks and mortar, and as a result property as such.

The IRD will however be looking at this tax take opportunity, but it would be quite a leap to introduce GST on overseas purchases just yet, given the government’s costs in collecting the revenue, and the level of tax that is currently coming off such items as petrol. Conversely, credit card companies will want online shopping to grow, given the benefit they get from the growth in sales.

Life is a matter of getting the “balance” right. Consumers feel challenged by today’s economic environment, and a friendly purchase online can make one feel they have “got a bargain”, and an expectation of the item arriving in the mail. Like excessive incomes for energy company Chief Executives and those working in the local body or public sector, a balance must be maintained in all. However, we believe that online shopping will have some interesting days ahead that will challenge its continuation in the current format. The market will dictate its future, probably with some help from the IRD.

SHAREWATCH – KATHMANDU

Kathmandu is one of the biggest names in the outdoors/ activewear retail sector in New Zealand and Australia, and also has a small operation in the UK. For the six months to January, Kathmandu grew sales strongly in New Zealand, reaching $54.7 million – with same-store sales up by 12.7%.

Kathmandu’s Australian operation posted higher sales than New Zealand (AUD $67.3 million), but made a smaller contribution to profits – despite having higher gross margins.

As for the six UK stores, Kathmandu hasn’t been too successful – the stores have never turned a profit and sales actually dropped by 13.6% compared with the previous year. All in all, it was a fairly disappointing six months for Kathmandu and the markets have reacted accordingly.

IN THE PRESS

LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 19 – 26TH MARCH 2012

NZ mobile phone shopping, the next big thing?
Credit card giant, MasterCard is betting their buck New Zealanders are at a “tipping point” with online shopping mobile payments. MasterCard’s Findings indicate near half of New Zealanders surveyed use online mobile shopping out of convenience, and what’s a more convenient mobile device than a smart phone?
(Source: NZ Herald)

A revolutionary scanner, barcode free
Japanese company, Toshiba Tec, has released a scanner that recognises objects based on shape. The scanner could reduce waiting times created by damaged barcodes and manually entered fruit descriptions.
(Source: Inside Retailing)

Big red jumps gun on new iPad
The Warehouse has speed ahead of Apple, announcing it will have 100 parallel imported new iPads available for purchase on its website – two days in advance of the official New Zealand release on Friday. The Warehouse has been placing greater prominence on growing its online sales.
(Source: NZ Herald)

Sockless shoe gives Nike new edge
The world’s largest sporting-goods maker has just revealed Flyknit, a 158g woven sockless running shoe. Executives say the new synthetic yarn weaving process could slim costs enough to shift production outside Asia and someday allow customers to personalise shoes to their precise foot specifications.(Source: NZ Herald)

Last week Westfield sponsored an early morning weekday conference in Auckland, with addresses from individuals who spoke on the evolving JCPenney department stores in the USA, and then the evolving online retail market. All very interesting, particularly the methods adopted by JCPenney to recapture customers with an offer of price reliability, and a “no coupons” approach but rather a “just fair and square” approach to retailing. It reminded us that we haven’t got that method of retailing in New Zealand. In fact, it would be fair to say that most of us are of the view that if we miss that bargain this week, then it will be available again soon. Maybe there is a tip here for the national retailers to adopt a similar approach to that of JCPenney. Rather than continuous discounting, give the customers a period of stability as to pricing, thereby ensuring that the retailer has the interests of consumers at heart, and that fact is communicated.

As for online retailing, we were a little bemused that Westfield offered no answer to the threat for retailers. Westfield is a company that houses retailers in bricks and mortar, and any threat to its longevity should be robustly defended. This all came on the heels of an announcement from Pumpkin Patch that they see their (global) online earnings beating those from their New Zealand retail stores within the next two years.

There’s a few things to note here. Firstly, Pumpkin Patch is talking about earnings, i.e. profit, and not sales. The company obviously expects their online business to be making good coin within the next two years. Pumpkin Patch thinks their online sales will reach $30 million this year, compared to around $60 million from their New Zealand stores. That said, at the rate the online business is growing, sales might outpace New Zealand store sales in a couple of years too.

Secondly, NZ retail stores only account for a small part of Pumpkin Patch’s business. Ignoring Patch’s UK and US retail operations, which have now closed, the New Zealand stores accounted for around 18% of sales and earnings in the 2011 financial year. Patch’s Australian retail and international wholesale operations are much bigger than the New Zealand store operations. So, although the media gave it a lot of attention, the announcement that Pumpkin Patch’s global online business will overtake their New Zealand retail business is not as severe as it appears. Pumpkin Patch are just making a quite reasonable comparison, saying that online sales will become just as important to their overall business as their New Zealand stores.

Thirdly, Patch’s announcement shows how online sales, to some extent, are simply replacing catalogue, infomercial and other remote retail sales. The company points out that “Pumpkin Patch started out as a catalogue business… so the concept of taking and fulfilling orders remotely is in our DNA”. It’s the same story for companies like Ezibuy. Online sales, though, are getting bigger than catalogue sales ever were in the past.

Fourthly, the announcement shows the opportunities for retailers who go online. Selling to an international customer base is an excellent strategy – after all, it’s a great big world out there and New Zealand is a very small market by comparison. There’s money to be made for retailers who can tap into overseas markets.

Online retailing is definitely a significant development, and there are both threats and opportunities that will come out of it. We are not of the view that this new phase is going to wreak havoc on traditional retail businesses throughout the country, but it’s increasingly important to remember that we have to be on our toes to match the competition, regardless of any form our competitors take.

SHAREWATCH – THE WAREHOUSE

Earlier this month, The Warehouse Group reported its results for the six months to January 2012. Sales rose by 3.3% to $937.9 million, an “encouraging” result which was driven by The Warehouse (Warehouse Stationery’s sales rose by a smaller amount). However, profits fell, due to lower margins on apparel, investment costs and other factors.

The Warehouse Group has fronted up to the fact that its “red shed” stores have not performed to expectation over the last few years, with an “unacceptable” level of customer experience and “poor execution of retail basics”. This is probably the strongest admission we’ve heard from the company, and one that should be welcomed.

The company has now embarked on a major program of investment and brand repositioning. The Warehouse sees “early signs that [their] long term sales decline is starting to reverse”, and time will tell if the brand can regain its dominant position in New Zealand retailing.

IN THE PRESS

LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 12 – 19TH MARCH 2012

Pumpkin Patch puts the E in earning
Despite overseas closures, Pumpkin Patch’s online business is anticipated to outdo those of its New Zealand retail outlets within the next two years, furthermore, the brand is seeking to expand in new international markets using e-tailing as its platform.
(Source: NZ Herald)

USA’s secret recession buster
Pet stores have been found to be a highly recession-proof retail genre in the US, as proven in a study released by IbisWorld. While many a retail category suffered in the GFC, especially apparel, US pet stores stood out as having positive revenue growth.
(Source: Inside Retailing)

Warehouse knocks on Internets door
The Warehouse revealed its Internet revenue rose 60 per cent on the prior comparable period during the six months to January 29 this year. The company is currently in the process of making its entire product range available on its website.
(Source: NZ Herald)

Westfield peeps on customers
New Zealand’s biggest mall owner, Westfield, is seeking new ways to map its customers journeys and may consider electronically tracking their movements through its 12 malls here.
“With bricks and mortar, we’re looking at how we connect to the shopper. We have invested in fibre optics and we are investing in Wi-Fi, mapping and GPS in malls and investigating the shopper journey,” said Justin Lynch, Westfield New Zealand director.
(Source: NZ Herald)

Last weeks NIB brought a number of comments from readers, most of which seemed to concur with our views relative to “standards”. One respondent suggested that “young people” think they are paid for “attendance” and “not work”! Further it seems that the education system gives young people a strong idea of their “rights”, so that when they enter the workforce that is all they focus on, not “responsibilities”. Without being detrimental to the new entrants to the workforce, there is often the attitude that “I am owed something”. Is this a problem? Certainly it seems so with a number of young employees, and standards are certainly influenced by “attitude”.

In RCG we debated this subject this morning, and heard of a situation where a group of people attended a well-known Auckland restaurant called “The Foodstore” in the Viaduct over the weekend. The food was average to poor but not inexpensive, and the wine very expensive. The standard of the food was good reason for a couple of complaints. The response was poor and a “take it or leave it” attitude. Not good in a city where restaurants are plentiful and repeat business is generated by service and satisfaction, and more customers are driven by “word of mouth”. Funny, isn’t it, how a “standard” can be dropped by one or two simple issues in a business, but the outcome for the business can be significant. Let’s move on.

Last week we noticed that both Briscoe Group and The Warehouse produced interesting financial results. For the Briscoe Group, the 12 months to January 2012 produced revenue of $438 million, well up on the previous year’s performance of $419 million. Most importantly, profit was up from $21.6 million to $27.5 million. A pretty good result for a company that has taken on and maintained a retail offering that sells product at value prices constantly. Maybe that’s the reason for the success of the brand? Store numbers hadn’t changed much, so trading was at its absolute maximum, and we could class that as a very good result when consumers were too afraid to take their hands out of their pockets.

The Warehouse result was for the 6 months to January 2012. Revenue was up from $908 million to $938 million, and net profit was $54 million over the previous $52.3 million. Some commentators have said that The Warehouse is a shadow of its former self, and sure the share price is not at the levels that it once was, but lets face it this major retailer has far greater opposition now than it has had previously and the performance of Briscoe demonstrates just that. The old adage about retailers selling and customers buying still remains valid. If a retailer such as TWL has stock, then it must shift it. If that means less profit then that is what happens, cash flow is paramount, and heavy discounting is the only answer. Further, it is better for a company to make “some” profit than none at all.

We are in changing times, we have to adjust according to the circumstances of the time. When Bunnings arrived in New Zealand, it effectively took over the “Benchmark” business. From this platform it launched the Bunnings brand, and these stores have been emerging throughout the country. It basically emerged out of a “bloke’s business”, where we considered Benchmark to be a place where builders would go. That has changed. Bunnings offers more than just paint and hardware, with a range of merchandise that offers both quality and value. The appointment of a female chief executive demonstrates just how this business has changed, and how much both female and male consumers are reacting to this impressive brand. Both Mitre 10 and Bunnings are serious contenders in creating sales and generating traffic. These companies, along with Farmers Trading Company, prove just how competitive retailing is. In the face of that the results from both Briscoe and TWL are very satisfactory. The challenge ahead, as it is for all companies, will be whether this position can be improved upon.

SHAREWATCH – HELLABY HOLDINGS

Hellaby Holdings is an NZX-listed investment company and the owner of New Zealand’s two largest footwear chains, Hannahs and Number One Shoes. For the six months to December 2011, sales at these businesses declined slightly to $78.9 million (compared with $80.4 million the previous year). Despite the decrease in sales, profitability rose, with earnings before interest and tax climbing by 22% to $1.7 million. Hellaby says that “this is a remarkable result and reflects a very strong operational performance, particularly by Hannahs”. However, these levels of profitability are still well below what the company was achieving pre-recession, and it seems that there is still some way to go before these chains can recapture their past success.

IN THE PRESS

LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 5 – 12TH MARCH 2012

McDonald’s re-opens Georgie Pie cold case
Fast food giant McDonalds is considering integrating aspects of Georgie Pie into its business, but is cautious of living up to the nations Georgie Pie nostalgia. McDonald’s took hold of the pie chain from supermarket operator Progressive Enterprises in 1996, mainly to acquire its real estate.
(Source: NZ Herald)

Australia tries on virtual dressing room
An Australian mall is set to reveal the worlds first virtual fitting room in the coming week. The device capitalises on motion sensing technology invented by Microsoft for the gaming industry.
(Source: Inside Retailing)

Homewares chain posts all time high
Briscoe Group, the homeware retailer, has experienced a record full-year profit as it elevated sales across its brands and kept costs in check.
(Source: Inside Retailing)

Walmart goes on safari
A South African court has given Wal-Mart’s $US2.2 billion takeover bid of local chain Massmart the green light, granting the world’s largest retailer its first foothold in Africa.
(Source: Inside Retailing)