Boom or Bust? Or boom and bust?

By Wares February 26, 2016 Industry features & issues

Both actually, depending on whom you speak to. We take the pulse of the industry with a cross section of owner-operators and managers, from independents and national chains, north to south. Wares reports.

To view a PDF of the complete feature as it appeared in Wares magazine, click the download button at the bottom of this page.

The world of retail is full of ups and downs and the NZ appliance and consumer electronics channel is no exception.

Across the country, wars are raging for market share in towns large and small, with some players going from strength to strength and others struggling to get by.

Retailers are notoriously difficult to speak to in our experience here at Wares so we devoted several weeks to a series of off-the-record interviews talking to retailers across the country.

We did our best to get a good spread across both the national chains (hence the anonymity) and the independents, as well as covering the major centres and rural provinces from Northland to Southland.

The idea was to paint a fair picture of the current retail landscape and, hopefully, collect some pearls of wisdom to guide the channel into the future.

Please note that while we tried to include comments from everyone we spoke to, we had to narrow it down to 15 contributors for the purposes of space.


North Island indies: Working smarter not harder?

We began our retailer journey with the independents, who shared their thoughts on making it against the majors, the challenges of small town business and providing a point of difference, starting with the North Island.


How’s business been?

We used to be the only players in a small town – everyone would hop in the car and drive to a bigger town to go look at stuff. But, now that there is a major across the road, they can compare us against them and that has actually really helped us.

We have also changed our product range from the ones that get hammered in the market to ones the majors don’t necessarily have like Bosch and Beko and that works well for us.

What are your key concerns?

This rush to the bottom is ridiculous – we are eating our own margins away for little benefit – consumers start seeing you as a price point rather than a retail experience which is the way it should be moving.

I’ve only been in this industry for a few years and it surprised me how old and conservative it is. The days of retailers just sticking stuff on shelves and waiting behind the counter are gone and the focus on price is just a reflection of retailer groups struggling to know what to do next.

What’s working for you?

We are strong in beds now and increasingly going into furniture accessorising, kitchens and homewares. That’s been a very good move for us and has improved our storewide margin.

We are increasingly using wireless technology that allows us to track mobile phones so we have a better relationship with our customer. It’s not big brother stuff, it’s the basic info that’s already sitting in our till, but this is giving our sales staff a prompt that says “Joe was in last week and bought a washing machine and he is important to us”.

Events are also becoming more important for us. We have a full working kitchen in-store, with regular cooking sessions and we have also gone into musical instruments and gig nights where people come in.


What are your key concerns?

Certainly the stupid pricing that some of our competitors offer! “20% off everything” sales mean there’s nothing left – the chains are surviving on the rebates and kickbacks but that’s not a viable business plan unless you’re trying to take competitors out.

And for suppliers, they don’t want their brands bastardised. From the first of February both F&P and Westinghouse are putting their prices up 12.5-15% and that’s a reasonable amount. I just wish they’d done this incrementally…

Plans/predictions for the future?

Personally I don’t think the appliance industry is very healthy. It’s been bad for the last four years and I just don’t see any light. Yes, we had a reasonably good start this year but, compared to previous years, it’s awful!

Sales are dramatically worse than they were pre-GFC. The chains tend to bugger it up completely. The suppliers are much harder to deal with than they used to be. Overall it’s bloody
hard work!


What are your key concerns?

Our biggest issue is getting locals to shop locally. As much as I hate to admit it, I do see independents becoming fewer. It’s very hard to sell a small appliance retail business – the profit is getting less and less attractive and, if we don’t keep locals shopping local, I think retail in small towns in general is looking under threat.

A lot of small towns are now just becoming food stalls – we may have to accept that fact. People want to go to the big stores in the Big Smoke and it’s very hard to stop them. I don’t think it’s going to be a fantastic year

What’s the solution?

Our biggest advantage is our service. People don’t really appreciate the service that they get from small local stores – real advantages like we keep records of all our customers. We used to deliver free but we can’t always do that.


How’s business been?

Very good. Our trading figures improved in the double digits over the previous year so we’re very happy. I just think our region hasn’t suffered like elsewhere and it’s “our turn”. There’s no dairy around our way and the industries we’re in are all pretty positive.

We’re also getting a lot of foreigners coming into town to live. We see English and South Africans coming in and older Aucklanders with their retirement money and we’ve got plenty of competition here so people don’t tend to shop out of town much.

What’s working for you?

All our departments are doing well. It’s been an exceptional outdoors season and the others have been plugging away. We’re a standalone and not part of a buying group and we’re very niche. We don’t try and compete directly with the big chains, we find something that they’re not doing very well at a price point level and we focus on that. We’re not going to sell $300 washing machines.

What are your key concerns?

I think our industry is getting shafted by the banks with bank fees, and credit card fees. The credit card processing rates have gone up and that’s just them profit taking.

Plans/predictions for the future?

This year we want to focus on appliances and beds. We’ve changed our furnishings already so we’ve got good brands and the margins have been good.


How’s business been?

Our growth in appliances has been huge. The locals support us very well and a very high profile customer wrote in his newspaper column about how good our service was and he said he wouldn’t go anywhere else.

We’re very unique in that we don’t have any real competition locally, although it does mean we carry a large range.

Thoughts on price matching?

We will match all prices. Sometimes that hurts but, the more we sell, the more we buy. The more we buy, the more we sell. That’s how it goes. The locals say: “we like your service, we like your prices, so we’re with you.”

Plans/predictions for the future?

It’s going to be a big one – we’re moving to much bigger premises and my hope is that we get into our building safely and we’ll be trading nicely.

A couple more members in our buying group would be good. We know we’ve delivered to the suppliers, but a couple more members who might be sitting on the cusp would be helpful.


What’s working for you?

It’s a wonderful industry but the rate of change is exponential – we’ve had to adjust rapidly to keep up. We’ve invested heavily online and every dollar we earn online is about four times the value in terms of business because customers come in-store and buy it, especially the big items. So online is driving traffic in-store!

Plans/predictions for the future?

I think there will only be one independent group and that will be driven by NARTA. There will always be a place for independents but it will be one channel.

The growth in the electronics and appliances industry will come from players like PB Technology. The way they go to market is very clever. If they continue to expand and they will, they’ll be the one to watch. After all, the bullet that kills you is the one you don’t see coming!

PB Technology is only in the big cities but there are plenty of people in the provinces who would love that access. I predict plenty of change. PB Technology will become more of a traditional player. They’re already in TVs.


How’s business been?

Up and down. You never know when it’s up and you never know when it’s down. December was quiet, January was busier. I just think it’s the ebbs and flows of the different cultures these days. Our ethnic mix is changing.

What are your key concerns?

Too many sales! These “20% sales” wipe out the margin. They’re so frequent people have become immune to them. The national chains are driving them. You’ve got to price match but the worst part, which we have to be most careful of, is when customers come in, you give them the information and your best price and they’ll then go and hawk your price around. That’s very dangerous.

Plans/predictions for the future?

I think the market will be up and down a lot. I think Dick Smith going into receivership stuffed everything up again.

Take The Good Guys – they were here for 60 months and never made a profit. All they did was stuff it up for everybody else. They destroyed the television trade with their discounting.


How’s business been?

Very good. We went down to a single brand for TVs. It helped with everything to be fair. Why be in a category when you’re losing money? We took market share category by category in front loaders and refrigeration
for example.

What’s working for you?

Our growth comes down to those category changes, advertising, and getting it right on the shop floor. Also making sure we have the right staff and reward them for performing well. Our staff
are knowledgeable and, because we don’t pay by commission – they aren’t pushy and we find we get a better calibre of sales staff that way.

Anyone throwing stones are probably throwing them in the wrong direction. Our philosophy is we’re not the biggest so we try to be the nicest and easiest to deal with. When you’re the biggest you can be aggressive. We’re not. We try and stay under the radar and do what we do well.

Plans/predictions for the future?

I don’t think the market will grow. Likewise in supplier land you’ll find some suppliers grow and some go backwards. The smaller guys need a USP. You have to be different and you have
to build on your strengths. Those who don’t will be closing
their doors.


South Island indies: comfortable in their niches?

In the South Island, our cross section of independents is reporting a similar range of boom or bust to their northern peers.


How’s business been?

The Christchurch market has certainly changed considerably over the last 12 months. It’s gotten tougher; a lot of the flat land rebuild has been done. There is still a lot of construction work being done but that’s predominately the commercial stuff in the CBD now.

So the flatland residential rebuild is pretty much complete and we’ve actually seen toward the end of 2015 that rentals have come back. There is now a supply of new homes available for purchase and we haven’t seen those for a long time so it’s almost tipped into oversupply and that’s meant that house valuations have stayed pretty flat for Christchurch in the latter part of last year.

We expect to see a tip back toward renovation in Christchurch now that tradespeople are becoming accessible again.

Plans/predictions for the future?

It’s certainly still really competitive. The big boys are certainly banging their heads together so we do what we do well in the premium end and survive pretty well in our area of the market.


How’s business been?

We are holding our own margin wise. Top end audio like Bose has grown and TV has come in the 55-65-inch models and because we are teaming that up as a home solution, price has not been the object.

What are your key concerns?

We are losing some in the entry level cooking market and that has now gone from our store. The top end is fine but that low end has maybe gone to the Bunnings and Mitre 10s. There’s still a market for entry level and always will be, but I think you will find it will be going to the big boxes.

So if you are naïve enough to think people aren’t buying that entry level anymore because you aren’t selling it, then you are wrong.


How’s business been?

Pretty quiet all year, really. We have a Noel, a Harvey and a 100% – that’s a lot of competition in a small town. We’re electrical contractors as well or we would have closed the doors. The majority of our business now is electrical contracting, that’s how we survive.

What are your key concerns?

Retail’s a hard business. There’s a “Go Local” campaign to entice locals to shop local and that seems to be working. We just have to keep trying and find new ways to entice the locals into our store.

Plans/predictions for the future?

I think we’re in for an even quieter year than 2015. It’s a farming community around here and the dairy prices aren’t helping.



National chains – just doing what it takes?

On to the “major leagues” and the store managers of the national chains, who were also forthcoming and keen to talk about their industry. Starting with the North Island…


How’s business been?

We’ve had a really good month of it in January – we made 130% of our target and we are up 20% year
on year.

What’s working for you?

We try to keep things interesting. We aren’t just selling the products – we are giving the customer a complete solution with service and teaching them how to use the device.

The other thing that’s working is that we are focusing on mobile plans and broadband. The mobile category is up and everyone has tried the late model smart phones so what’s the reason to upgrade? It’s all about data and connectivity.

What are your key concerns?

The challenging thing has been profit. With the market so aggressive we wouldn’t want any deal to go out the door. So we match prices, and sometimes it does cost the business money by promising stuff like that.


How’s business been?

Christmas was really good for us. IT was the top seller which is still largely laptops, followed by big TVs and then whiteware/small appliances.

What’s working for you?

We often have people coming in who know our price match strategy. Our buyers are constantly checking our competitors’ prices and at store level we get constant updates to lower our price by just a dollar or two to make it cheaper than somewhere else.

So if it’s an advertised price or it’s online or they’ve got a catalogue, we’ll match it, which has helped us a lot.


On to the South island again and the national chains…


How’s business been?

Things are pretty strong down here in retail at the moment. I have staff that have been here a long while and people know and rely on them.

With the closing of Selectrix and Dick Smith there are only three players our size down here so the choices are limited and I suppose we have everything under one roof with finance and having great choice with TVs and heating you can put everything on hire purchase.

And we do well with a mix of things with whiteware and TVs doing well.


How’s business been?

We had a good second half of 2015 with hard furniture and lounge suites. We have a large store because we carry a lot of stock. With our product range it’s not easy to purchase online as you need to test beds and furniture in particular and, because we’ve been here for years, we get a lot of repeat business.

Plans/predictions for the future?

I can tell you that turnover grew last year and all indicators are that turnover will grow again this year.

I can’t tell you whether margins and profits will grow but we look at the long game. If we have to sacrifice margin in the short term to expand our stores which will grow our market share, we will do that.


So what can we take way from the comments made by these 15 retail players?

Most obviously, there is plenty of turnover out there for those who are ready to hustle for it, even if margins continue to dwindle to the detriment of all.

For those independents in the provinces with an eye on the prize, product diversification, niche markets, knowledgeable staff and a focus on providing fun and personalised retailer experiences could see them right in the future – and perhaps even better than the majors?

Not all small towns are alike however. Independents with enough competition nearby to keep locals shopping local, and plenty of retirement or tourist dollars in circulation definitely have a fighting chance.

On the other hand, areas within easy reach of the major centres – and dependent on an already beleaguered dairy industry or similar – may continue to struggle.

For the majors we spoke to, there appears to be plenty of business kicking around but, with aggressive price erosion a constant factor, one has to ask, when will it end?

Perhaps smarter rather than cheaper is the future for the industry?

Let us know your thoughts!


share this