The Warehouse's $1 sale of its brand Torpedo7 may sound like the ultimate bargain, but as an industry insider explains, it's a sign the retail sector is struggling.
The Warehouse Group announced on Thursday it was selling the outdoor brand to Tahua Partners Ltd for $1, with group chief executive Nick Grayston describing the sale as "bittersweet".
"Torpedo7 represents only 5 percent of our group sales, and the tough reality is that our attention and resources are better spent strengthening our core The Warehouse, Warehouse Stationery and Noel Leeming retail brands," Grayston said.
A Tahua Partners Limited spokesperson said they were delighted to welcome Torpedo7 into their business.
"As a 100 percent Kiwi-owned and operated business with a passion for retail and hospitality, we believe Torpedo7 complements our family of well-loved global and local brands."
But is there more to it than meets the eye?
Kieran Carling, a research analyst at Craigs Investment Partners, pays close attention to the retail sector, including The Warehouse Group.
"The $1 sale has obviously been the key talking point this week, and given The Warehouse paid about $83 million for Torpedo7, it's a disappointing result for shareholders," he told Newshub.
"However, in reality, that business has struggled for a number of years."
He continued: "In the nine years or so that The Warehouse Group has owned Torpedo7, it's turned a profit for only about half of those years, and if we look just last year, despite contributing about less than 5 percent of revenue to the group, Torpedo7 made a $22 million loss."
Grayston acknowledged that Torpedo7 has struggled.
"Torpedo7 has faced ongoing challenges to its performance recently. Lower consumer demand post-COVID, driven in part by a global decline in the bike market, has impacted sales and profitability," he said.
"We've decided it's time to draw a line under it and we have found an owner who can focus more attention to its turnaround."
Infometrics economist Brad Olsen said it's a sign of the times.
"I think what we're seeing in the economy at the moment is that households are having to make some tough but important choices," he told Newshub.
"They don't have nearly as much disposable cash."
Stats NZ data shows retail spending has fallen for the eighth quarter in a row.
Of the 15 retail industries - including clothing shops, hardware stores and supermarkets - nearly all of them (14) had lower sales volumes in the December quarter, compared to the previous one. Overall, the volume of retail sales fell by 1.9 percent.
The retail sector is a victim of inflation. To bring it down, the Reserve Bank orchestrated sharp interest rate hikes, to reduce the discretionary spending of mortgage holders, which ultimately, leads to a cooling of demand.
But Olsen believes it's still too soon for rates relief next week, when the Reserve Bank will release its Official Cash Rate update.
He said the central bank will need to "hold our foot on the brake just a little longer to continue to ensure that inflation does continue to move away", because "only then are we likely to see a bit of interest rate relief".
And until that relief arrives, expect shoppers to keep their purse strings tight.
