PowerHouse stopping the rot

Eric Watson's troubled UK electrical-goods chain hopes to announce a crucial deal within the next fortnight to allow another retailer to open stores inside its premises.

New chief executive Chris Onslow, who has been tasked with turning around the money-gobbling PowerHouse chain, said it was likely to be the first of many such deals.

If successful, it will be a welcome relief for New Zealand shareholders in Pacific Retail Group, which bought PowerHouse for $47 million in 2003.

Speaking from Britain, Onslow said the company had more than 100 stores in megastore shopping parks - low rental areas that many high street retailers were "desperate" to get into.

But those retailers operated smaller outlets and could not afford the leases for large format stores in such parks.

PowerHouse planned to let key retailers open stores within its megastores - bringing with them fees, rental and, most importantly, increased foot traffic and spending on marketing.

"We're in final negotiations in terms of concessions," Onslow said. "We're talking to people who are strong in retail that want to go out of town."

Each store could carry three or four different concessions and the company could sign six to eight concession deals with other retailers.

Significantly, PowerHouse has targeted retailers that are specialists in "grey goods" - high technology products such as digital cameras, camcorders and iPods - an area of weakness for the chain. It has traditionally sold "brown goods" such as televisions and stereos, and "white goods" such as washing machines and stoves, and its lack of grey goods has dragged on PowerHouse's performance relative to its larger competitors Comet and Curries.

Onslow said the retailers involved were "hugely recognisable" names that were the best at selling their particular products. "It will differentiate us hugely [from the competition]," he said. "It will be famous brands at PowerHouse."

It would have been hugely expensive for PowerHouse to establish its own grey goods business and market the change. The company had also previously used the concession strategy successfully until 1997, when an "arrogant" decision to ask concession holders to roll out across all stores or get out cost the then management dearly. "They went," Onslow said of the concession holders.

Onslow believes the strategy will prove crucial in meeting budgets over the next two years. The stores are meeting budget when they get sufficient traffic, such as at weekends, but the concession strategy will help increase custom during the quieter week-day trading.

The concessions will be tested from about July and, if successful, will be rolled out before the peak Christmas period.

In February, New Zealander Peter Halkett said he was stepping down from the top job at PowerHouse to be replaced by Onslow, a first time chief executive.

Onslow said he was approached to do one day a week of consultancy for the company, but after meeting Halkett was persuaded to do two.

He started on a Monday and was still in the office at 10.30 pm on the following Sunday. By then he was convinced he should join the chain, despite the fact it had been bought out of receivership.

"I just saw such low-hanging fruit. This is a goldmine," he said of PowerHouse. He's confident the company will be a big turnaround story. "It will be a McKinsey case study."