Thought bricks and mortar retail was dying? Think again. The Warehouse Group is ramping up its Torpedo7 outdoor gear brand, planning to expand its network of physical stores from what was once a simple online offering. But bucking the trend isn’t as simple as you might think, the company says.
At the same time as signalling a beefed-up full-year profit forecast, Warehouse Group CEO Nick Grayston today said the company was expanding Torpedo7’s physical retail presence, because its existing stores were out-performing online channels.
“We see a big strategic opportunity around Torpedo7 becoming an omnichannel business with a wider bricks and mortar store network, but we need to get it to scale in order to leverage its role within a wider group strategy,” Grayston says.
Warehouse Group bought a majority stake in Torpedo7 in 2013. “Essentially it was a small Hamilton-based pureplay with a start-up mentality and was bought with a view, at the time, to The Warehouse learning more about e-com,” Grayston says. But after rebranding six R & R Sports stores as Torpedo7, The Warehouse started seeing the brand’s value offline.
It recently opened new stores in Palmerston North, Porirua and Westgate Auckland, and will open at The Base in Hamilton in September and Manukau and New Plymouth in October.
“The Torpedo7 founders left the business and we lost IP and culture.”
Nick Grayston, Warehouse Group
But the path of retail expansion doesn’t always run smooth, Grayston says. Taking an edgy online adventure clothing brand mainstream hasn’t been easy, particularly when combined with moving almost all Torpedo7 operations except the distribution centre from its former home in Hamilton, to Auckland.
“Getting it to scale has taken longer than expected, especially with the backdrop of moving the business to Auckland, which cost us more IP than expected… The Torpedo7 founders left the business and we lost IP and culture.”
Warehouse Group also today announced a $25.6 million impairment of goodwill related to Torpedo7 because of the expansion into physical stores.
“As a consequence of that shift, the future cash flows, which reflect an investment in a store expansion programme, no longer support the goodwill valuation associated with the original acquisition,” Grayston says
Meanwhile, The Warehouse has rolled its No1 Fitness equipment brand into Torpedo7 as a product category instead of a standalone business, and has scaled back its Australian online presence. It has also sold Shotgun Supplements “to relieve ourselves of the distraction, and focus on the Torpedo7 brand’s core proposition of outdoor adventure”, Grayston says.
Overall, Warehouse Group says it now expects its full-year adjusted net profit to be approximately 10 percent higher than it previously forecast.
“Following a stronger than expected end to the trading year in its core Red Sheds and Noel Leeming businesses” the company now expects adjusted net profit for the 12 months to July 29 to be in a range of $58 million to $59.5 million, versus the $50 million to $53 million range it forecast in March. The result is 12 percent to 15 percent lower than the previous year.
