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Although The Warehouse has managed to turn things around, Kiwis now have multiple options for finding deals beyond just those iconic red sheds, which could pose challenges according to experts.


 On Friday, The Warehouse Group announced a half-year profit of $11.8 million for the period ending on 26 January.


 This compares to a loss of $27.7 million in the previous year.


 But Paul Koraua, NZ equities analyst at Forsyth Barr, said "turnaround" was a stronger term than he would choose to describe the performance.


 "The sales declines are slowing, it feels like we're finding a bottom in terms of consumer spending in New Zealand. But it doesn't feel like it will turn around in any rush from here."


 He said there were "definitely" concerns about whether The Warehouse could maintain its market share into the future.


 Competitors were becoming increasingly aggressive - Kmart was still expanding and Ikea was looming on the horizon. He said Ikea in particular could be a major problem for The Warehouse.


 "They speak to wanting to improve ther home furnishing offering. That's going to be a way they're going to be able to able to drive profitability through red sheds because home furnishing is higher margin for them but they are coming up against the largest furniture retailer in the world. Especially on the year it opens, there will be a big bubble of people who want to go and check it out and end up spending money there instead of on furnishings at The Warehouse."


 He said Ikea would be offering online distribution from day one.


 "They open at the end of this year but their distribution centre is already up and running so the day they open anyone across the country can order stock."


 Koraua said other retailers acknowledged the next six months would be challenging.


 "Sales lines are probably not shooting back up in any rush, margins are under pressure. Everyone is competing for the same amount of consumer spending and there's the foreign exchange impact as well, it's going to be tough."


 He said it was positive that The Warehouse had been able to keep its costs under control.


 Greg Smith, head of retail funds at Devon Funds Management, said The Warehouse had had internal challenges as well as the problems of working in a recession.


 "They've had to go through a bit of a strategic rethink, they still haven't got a permanent CEO. They've faced all sorts of problems. It's almost coincidental that the week the economy comes out of recession there's a bit of brightness for a number of sectors including retail."


 He said the second half of the year would probably be worse for the retailer, because it did not include the key Christmas shopping period.


 "Things are not as bad as they were. Same store sales were down but an improvement over the last couple of years and there was as smaller decline in the second quarter so it looks like the trend is improving. They have been discounting so that's putting margins under pressure."


 Smith said while the company said it was not waiting on the economy to help turn its fortunes, it would offer a helping hand.


 "This has come at a good time."


 An important aspect to consider is how significantly The Warehouse needed to sustain a discount strategy to attract and retain customers.


 Mike Taylor, founder of Pie Funds, said the pressure from Temu and Shein was intense online, and Kmart was putting up a strong fight in the big box space.


 To be honest, I don't understand how they will restore The Warehouse's former glory. This does not imply that the store lacks relevance or cannot turn a profit.


 However, it won’t be similar to what they experienced 20 or 30 years back. These days, The Warehouse isn’t the sole spot for snagging a deal.


 Chris Wilkinson from First Retail Group stated that Ikea will raise customer expectations, and The Warehouse must discover a unique angle and differentiate itself.


 He mentioned that it should also concentrate on the longevity of its items.


 The emphasis from the European firm has necessarily been on the durability and endurance of their products.


 He said retail was improving across the country, although there were still challenges.


 One issue for The Warehouse was that stores like Temu were capturing consumers' extra spending money – frequently by offering items shoppers hadn’t realized they required.


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Ikea Takes on The Warehouse: What's Next?

Unknown business, commerce, economics, retail, warehouses

Although The Warehouse has managed to turn things around, Kiwis now have multiple options for finding deals beyond just those iconic red sheds, which could pose challenges according to experts. On …