National rural retailer Farmlands has the right plan for reconfiguring its business and will go as hard as it can on implementation over the next year or two, chair Rob Hewitt says.
The current downturn in farming is flowing on to rural servicing, but that makes the Farmlands transformation more imperative.
Within the plan, called Paragon, is supply chain rationalisation to bring some 44,000 products down to 10,000 held in store, about half of which account for over 90% of all sales.
“The on-shelf availability will go up from 60% to plus-90%, which is what the customer wants,” Hewitt said.
“We mine the point-of-sales data to ensure that we know what products customers want and where, so we make sure that is in the store when needed.
“We are not going to destock products that the customer wants.
“If he wants a left-handed spanner, we will get it, but we may not be carrying it on our shelves.”
Farmlands declared a small loss of $700,000 in the year ended June 30, saved from a much larger loss by the one-off net gain on sale of its fuel business into a joint venture called Fern Fuels.
Revenue was up 2.5% to $808 million but the cost of goods sold and the operating expenses were both up 14%.
Therefore, the loss from continuing operations was $27.5m and the earnings before interest, tax, depreciation and amortisation were only $1m, compared with $40m in the previous financial year.
Hewitt said the bigger operating expenses went mainly to staff members, to reward them appropriately and reduce staff turnover, to ensure customers could draw on that knowledge and experience.
The cost of goods sold reflected the general inflation in the primary sector and the sourcing from overseas, he said.
It made a $20m provision for stock obsolescence to clear old and redundant lines.
“For example, we carried 10 or 11 mouse traps, but that will come down to one or two best-sellers.
“We are not saying the other mouse traps are no good, just that we are not carrying them.”
A storm of social media criticism of Farmlands, chief executive Tanya Houghton and its right-sizing policies will be addressed at the annual meeting if necessary, Hewitt said.
He was speaking before the AGM, which was held on Wednesday, November 29, at the Burnside, Christchurch store.
Farmlands has agreed to buy the SealesWinslow animal feed business from Ballance and that purchase is now subject to Commerce Commission clearance.
The commission has asked for submissions before December 7 and hopes to make its decision by mid-January.
Farmlands already has the competing NRM pelletised feed business and uses SealesWinslow as a toll manufacturer in the North Island.