Investors query bargain tag on The Warehouse

A leaked cost-cutting plan for The Warehouse has met with a cautious welcome among investors.

Warehouse shares were up as much as 5c yesterday as news of its bid to win lower prices from suppliers sweetened investors' confidence. Shares in the company closed 3c higher at $4.18 each.

Despite the gains, fund managers said the discount retailer would have to prove it could deliver before its plans had real credibility.

A report in the Herald revealed The Warehouse met with 200 of its 3000 suppliers to outline a new "strategic supplier management programme" designed to cut its costs and improve the quality of the products and service it was offered.

Some suppliers were asked to deliver a 10 per cent discount to the company - against a backdrop of plans to halve the number of Warehouse suppliers.

A spokesman for the company said yesterday that discount targets had been set on a case-by-case basis.

While the programme was about reducing costs, it could also involve working with suppliers to look at product designs and ranges and helping them improve their own efficiency.

Rather than having a set finish, the programme would introduce an ongoing way of doing business, he said.

Tyndall fund manager Rickey Ward said the plans were a "step in the right direction" by Warehouse chief executive Ian Morrice, but he had heard turnaround plans too often in the past.

"For myself as a shareholder I'm going to wait until he delivers ... implementation has always been the problem for this company."

Ward said the company had been focused on its problems in Australia, while inefficiency crept in to its New Zealand operations where its stock had become mismatched to consumer demand.

"The Warehouse had a pretty successful formula ... they used to offer bargain, better, best. That's what they need to get back to," he said.

Paul Richardson, of BT Funds Management, said the company would have to make changes at the same time as it fought back against competitors such as Bunnings Warehouse and Mitre 10, which have built up large-format stores rapidly and have undercut its prices.

While it was vital Morrice rapidly attacked costs, as well as adding value to the experience of shopping at the chain through efforts such as training staff, he would have difficulty doing so in a weaker retail environment with economic growth predicted to slow.

"He [Morrice] has had a couple of months in the seat and is saying good things, but frankly it's a pretty long turnaround story ... they have a significant headwind and competition."

Richardson also believed there could be dangers in pressuring suppliers, who could now sell to the growing number of Warehouse competitors.

"They're running the risk of destabilising the structure they had."