Warehouse Group Restructures Head Office to Cut Costs

The Warehouse Group has announced a significant restructuring plan aimed at reducing costs across its operations. Despite a modest sales increase of 0.9% to $674 million in the first quarter of the new financial year, the company is seeking to enhance profitability through a comprehensive cost reset programme. This initiative will involve changes to its head office structure and increased outsourcing of IT functions.

New group chief executive Mark Stirton emphasized the necessity of decisive action to restore profitability and position the company for sustainable growth. “Our shareholders rightly expect decisive action, and that is exactly what we must deliver,” Stirton stated. The company is proposing changes to its head office structure to maintain a competitive and sustainable operating model in a challenging retail landscape.

The Warehouse Group has acknowledged the potential impact of these changes on its employees, stating, “These are difficult decisions, and we do not take proposed changes that impact our people lightly.” The company is committed to supporting its staff through the upcoming consultation process, which is expected to unfold over the coming months.

IT Outsourcing and Partnership Expansion

As part of its restructuring efforts, The Warehouse plans to expand its partnership with Tata Consultancy Services, an India-based IT and digital conglomerate. This collaboration aims to streamline the group’s technology infrastructure and reduce costs by eliminating legacy systems and consolidating platforms. In September, the company partnered with Tata to support managed services transformation, with expectations to cut costs in licenses and managed services by up to $40 million over the next five years.

The strategic shift towards outsourcing IT functions is part of The Warehouse’s broader initiative to achieve a cost structure below 31% of sales. While specific details regarding job impacts remain undisclosed, the company is entering a consultation phase to engage with its teams about the changes.

Positive Sales Growth Amid Challenges

In its first quarter trading update, The Warehouse Group reported positive sales growth across all its brands, despite a difficult retail environment characterized by low consumer confidence and high unemployment rates. The Warehouse’s sales rose 0.7% to $389 million, while Warehouse Stationery experienced a 2.6% increase to $52.2 million. Sales at Noel Leeming also saw a rise of 0.7%, reaching $230.7 million.

Stirton noted that while sales revenue and units sold have increased, the company is still striving for the full-price sales necessary to improve margins significantly. A warmer winter has slowed the sell-through of items, leading to increased clearance activities that affected the perceived value of new spring home and apparel ranges.

Despite the positive sales figures, Stirton acknowledged that the gross profit margin at The Warehouse chain remains under pressure. “There are encouraging signs our new product ranges and in-store experience are resonating with customers,” he said. However, he emphasized the ongoing need to enhance gross profit margins and reduce operational costs to ensure improved profitability moving forward.

The Warehouse Group’s restructuring and cost reduction strategies reflect a proactive approach to adapting in a challenging retail environment while striving to deliver value to its customers and shareholders. As the company navigates these changes, it remains focused on fostering sustainable growth and maintaining a competitive edge in the market.