The Warehouse, already a staple in most towns, is aiming to use what it knows about its 3.9 million customers to expand into online shopping.
TheMarket was launched on August 1 and offers shoppers access to 1500 brands in what it described as a curated lifestyle shopping experience.
With its latest project, the NZX-listed company was taking a punt that Kiwis will move more of their shopping habits online.
The Warehouse executives hoped that TheMarket will evolve into a local version of Amazon.
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But commentators are wary about the multi-million dollar bet on Kiwi’s willingness to spend online.
The Warehouse Group chief executive Nick Grayston said the company was confident it could develop a digital marketplace of its own.
TheMarket offered products direct from suppliers that were not sold by its stores, he said.
“We already sell to 3.9 million out of 4.8 million New Zealanders. We already have good personalised data through our different loyalty programmes. This is about extending our reach.”
Despite its deep shopper insight, TheMarket was a $12 million, 14-month punt on Kiwis doing a far greater chunk of their shopping online in the future.
Retail NZ said in its 2018 annual report that online shopping accounted for 8 per cent of the $92.3 billion spent on retail in New Zealand last year.
This was expected to grow to 13.1 per cent by 2030.
But overseas the online industry is more developed. In the United Kingdom, online shopping made up 18 per cent of what was spent in retail last year.
Grayston said the $12m investment wasn’t that significant when contrasted with the potential future growth.
The Warehouse took a percentage of every sale on TheMarket, though Grayston declined to say exactly how much.
Grayston said TheMarket was a multi-year investment, and he didn’t expect the site to turn a profit for the next three, or even four years.
Company shares have dipped three per cent since the launch.
New Zealand’s Amazon
The wider strategic goal for the company was to build a customer base that went hand-in-hand with personalised promotions and products, he said
“In the US where they have 110 million households who have Amazon Prime, its their first go to point for anything they want to buy.”
Grayston said TheMarket could capture the same sort of territory in New Zealand.
However, the point of difference between TheMarket and Amazon or Wish was that The Warehouse was offering a curated shopping experience.
“If you are a brand, to be able to control how your brand shows up, it is in advantage. So its a win-win. They get the exposure, the customer gets the content and good experience, we control their ability to be serviced and looked after.”
Emmett Vallender, chief operating officer at homewares company Citta Design, said the site offered a way to showcase its products.
“So far, we have seen new customers buying our product via TheMarket who haven’t purchased with us before,” Vallender said.
Customers had told the Auckland company they appreciated having a local shopping platform.
Delivery was charged by the individual store however, TheMarket would eventually offer a subscription service that would cover shipping costs.
Creating a shopping ecosystem
TheMarket was the first step in creating a wider ecosystem that could include insurances, micro-finance and a benefits scheme for paid subscribers, Grayston said.
The company’s previous foray into financial services ended in 2017 when it sold Warehouse Money to SBS Bank, resulting in a $16m write down in that year’s results. It sold pet insurance, travel insurance and was spruiking an in-store credit card.
But Grayston is bullish.
“If you look at companies that dominated the Fortune 500 twenty years ago, they are no longer there,” Grayston said.
“The companies that are at the top of the list now are Facebook, Amazon, Microsoft which have very different orientations.”
Grayston said TheMarket fit within The Warehouse’s transformation strategy that began in February 2017.
The company was focused on fixing its retail fundamentals, including introducing permanently dropping prices rather than offering constant sales, he said
“But that in itself is not enough. Just taking out cost is not a long term strategy. We want to build a sustainable future [for the store],” he said.
“To do that you have to recognise the world is changing, as is how customers want to shop.”
Grayston said the company had invested in growing locations and partnering with other retailers where there was no physical store.
Torpedo7, The Warehouse Stationery, Noel Leeming and 1-Day all fell under The Warehouse Group umbrella.
The Warehouse had also focused on developing a database that allowed it to offer targeted promotions rather than blanket mailers.
A list of influencers
In addition to targeting already loyal The Warehouse customers, the development of an influencer registry was part of the strategy to build word of mouth for TheMarket.
“Part of how we are taking a different approach to the market is create a platform that is very elegant, to provide different ways of shopping and allowing brands to curate their own experience, some of it is using influencers and also, we ore originating content. So, a fashion story on coat trends is better than saying here is a bunch of coats, choose for yourself.”
He said the company was targeting potential customers via multiple levers.
“People are looking for guidance and advice but their influencers come from many different sources, so being able to recognise and react much more nimbly is a good thing.”
Ultimately, Grayston wanted to establish TheMarket as the first place people go when they want to buy.
But it won’t be an easy feat.
Retail First Group managing director Chris Wilkinson said TheMarket was an interesting concept, but it would require the company to sell a fairly large volume of product to recoup the $12m investment.
He also warned against pinning hopes on influencers to promote products on the site.
“That demographic is very fluid. These are savvy consumers and they are an agile and dynamic audience who can flip very very quickly,” Wilkinson said.
It has been a tough decade for The Warehouse as the company faced pressure from competitors.
Kmart has seen a resurgence, Ikea is expected to arrive soon, Costco has announced its first New Zealand store and the likes of Bunnings and Briscoes have begun expanding into categories once dominated by The Warehouse.
Lurking in the wings, discount retailer TK Maxx has also indicated it’s interest in setting up shop in New Zealand.
The Warehouse Group saw a massive drop in profits in 2016, reporting a $20.4m profit down from $78.3m the year before.
In 2018, the group recovered a little, and reported a $22.9m profit.
The prospect of another global chain entering the market prompted The Warehouse to introduced the “Red Rack”, an area set aside for big brands like Puma, Adidas, Calvin Klein and superstar singer Rihanna;s Fenty by Rihanna sourced from overseas at bargain prices.
At the time Grayston, who previously held top roles at Foot Locker and Sears in the US, acknowledged TK Maxx and Nordstrom Rack were role models for the initiative.
Grayston said Red Rack had yielded positive results for the company.
“Red Rack has been a really successful initiative. It is around recognising a demand from customers and building the muscle of a more aggressive sourcing engine that allowed us to get more products.”
Red Rack has just launched online as well.
Its made some significant moves to centralise and streamline distribution, confirming this week it had closed nearly all its instore distribution centres for online shopping purchases with the loss of about 40 jobs.
An incubator for ideas
Sommer Kapitan, a marketing lecturer at AUT, said TheMarket was an interesting concept that could change how Kiwis shopped.
The Warehouse had been willing to branch out into different forms of retail, Kapitan said.
“They are actually quite innovative and pushing forward. They understand our demographics and how we work and how we shop.”
Kapitan said not everything The Warehouse tried had worked but the company was willing to push the envelope.
“They are willing to bet on things that seem riskier to see if it will jive with New Zealanders want.”