The Warehouse's $65 million acquisition of appliance chain Noel Leeming Group has failed to impress one brokerage, with Forsyth Barr downgrading its recommendation on New Zealand's largest listed retailer following the news of the purchase.

A research note issued last night by Forsyth Barr analysts Chelsea Leadbetter and Andy Bowley said the consumer electronics market that Noel Leeming operates in was intensely competitive and was characterised by low margins and price deflation.

"We have downgraded our recommendation to reduce and our target price falls to NZ$2.90," the note said. "Noel Leeming is the market leader in New Zealand, but competition is intense. We question the attractiveness of the acquisition given the unfavourable market dynamics."

The Warehouse chief executive Mark Powell says the acquisition will help the Red Sheds secure well-known electronics brands it has been unable to stock in the past.


The Warehouse wants to offer more big-name appliance brands, including Samsung, to its customers but the company has faced difficulties securing such brands.

Forsyth Barr said the acquisition would theoretically give the company access to popular consumer electronics brands but "in practice we don't think it will happen".

"We are unsure as to what extent The Warehouse will be able stock leading [electronics] brands."

In another research note Goldman Sachs retained its sell recommendation on The Warehouse shares, saying this reflected the high cost of the stock as well as the "uncertain" repositioning of Red Sheds and growing competition from specialty and online retailers.

The Warehouse is in the midst of a $130 million revamp of its 91-site network of Red Sheds stores.

Shares were down 2.3 per cent at $3.03 in early trading today.