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Smiths City's $1.5m for unpaid meetings adds to red ink

National retailer Smiths City has failed to turn around declining sales after a three-year "transformation programme", but new chairman Alastair Kerr is promising a bigger shakeup.

Smiths is not alone - NZ Retail Group's latest report showed nearly half of all retailers failed to hit sales targets - "a trend of underperformance across the sector". 

Kerr said the transformation programme had not been sufficiently focussed, and the pace of change had not been fast enough.

Smiths chief executive Roy Campbell who was appointed in 2015.

"If a customer comes to us seeking a bed we should also be offering them manchester and bedroom furnishings. If they come to us seeking a lounge suite we should also offer them cushions, a throw or other accessories. We need to sell a lifestyle."

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Kerr said a $4.9m write off for expensive leases of several underperforming stores reflected determination to take difficult decisions.

Smiths recently closed a store at Bush Inn, Christchurch, Ngauranga Gorge and the Greymouth Clearance Centre, and trading at the new Auckland stores had not met expectations.

Adding to Smiths' woes was a requirement to come up with $1.5 million after a recent Employment Court ruling the company must recompense staff for pre-work sales meetings.

Smiths chief executive Roy Campbell, who was appointed about three years ago to carry out the transformation programme, said the Employment Court showed the company had fallen short of its own values.

"In retrospect, we agree with the court. The audit covers all current and previous employees for the last six years and is not complete. We are working to finalise the exact figure and will reimburse all affected staff over coming months as we locate those that worked for us in past years."

Meanwhile, chairman Kerr said priorities for the year ahead included an uplift in investment in the brand, technology, systems and training.

Kerr said the Smiths board included two other new directors committed to "injecting new energy and urgency". 

One of them was Antony Karp Trade Ink Christchurch , nominated to the board by the company's major shareholders Mercantile Investments and Sandon Capital, associated with Sir Ron Brierley. 

A retail observer over many years, Paul Keane director of RCG Realty, said the company needed greater exposure to its biggest markets in Auckland.

"They're really struggling, although they're not on their own when you look at some of the other chains. This is their second foray into the North Island. There doesn't seem to be a strategy for the future that I can see," Keane said.

However, Campbell said the Auckland stores were benefiting from new management and more localised marketing support.

"This year it became apparent – despite our significant effort – a small number of stores would never generate enough to cover lease payments let alone generate a profit. We decided it was better to immediately recognise this in the accounts rather than letting the stores dilute the positive results elsewhere in the network," he said in the company's report to the NZX.

"We are reviewing the future of these stores and will continue to trade them where it makes financial sense to do so," Campbell said.

"Our online channel, which we relaunched this year, is growing strongly. Internet sales in the fourth quarter are up 51 per cent on the same period on the prior year and the rate of growth has continued to accelerate.

"Customers turn to the online platform to compare prices across retailers and, after visiting the stores, use the platform as they discuss preferences and make purchases," Campbell said in his report.

In the 12 months ending April 2018, revenue fell 5.1 per cent to $215.9m, with a net loss before tax of $9.9m, a tax credit of $27m taking the final loss to $7.2m. There will be no dividend.

The share price has fallen from 70 cents each a year ago to 42c.

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