Rebel Sport

"You get a bit bitter and twisted," says Ken Earby wearily behind his glass cabinet counter. Earby and his brother Philip have been running Huntly Hardware Supplies for 30 years, 17 years from these premises, but now the wretched whiff of extinction rises from the Hitachi drills and hunting knives. Late morning, midweek, and not a customer in sight.

Since The Base, Hamilton's latest big-box shopping complex, opened on the city's northern fringe last year only 20 minutes' drive away, sales here have plunged 30 per cent. Road-works outside are compounding the problem.

"We're going to take another hit because the big Mitre 10's opening up there," says Earby. On some prices, his store beats the big chains like Bunnings Warehouse, but he's annoyed that shoppers have stopped bothering to check.  "People have got a built-in Warehouse culture, unfortunately, these days. They think The Warehouse will supply everything, and if it doesn't, they'll make do with what The Warehouse has got."

He's hoping the new Countdown coming to Huntly will bring shoppers who'll browse the main street after they've filled their trolleys. New subdivisions should also help. "You gotta hang through," he says. "Within six months it should start picking up."

Up the road $5 Max and Mr Max is a different world. Merchandise clutters tables and racks in a twinkling confusion of colour and plastic. A steady flow of shoppers comes to hunt out their bargain; a thin middle-aged man buys a thin-bottomed saucepan.

Huntly has three of these ultra-cheap, lucky dip-style shops that have sprung from the ashes of more traditional local stores in New Zealand's small towns and suburbs since the 1990s.  Owners Clive and Jan Quintal are unfazed by competition from the likes of the Red Shed. "Competition has always been there, it's just getting a bit more aggressive, and the opponents have got to be a bit smarter," he says. "You've just got to go with the flow, wherever you can make a buck, that's what you've got to do."

Since New Zealand's big-box retail revolution spread to Waikato in the 1990s, Huntly's shopping strip has slowly but surely changed. A forlorn Deka sign still towers on spindly poles above K Beez' grocers-cum-$2 shop - the department store chain an early Red Shed casualty.

David Lane is stoical. He and his wife Doreen have run D & D's Family Footwear for 11 years, and Lane is chairman of the local business association.

"We are still surviving. A lot of the shops have changed, but there's only two empty," he says. Huntly is on the up - a new surfwear store has opened across the road; the money-lenders who moved in a few years back have moved out again.

They've had to downsize - Rebel Sport's pulling power resulted in Adidas cancelling its supply to the store five or six years ago, and when The Warehouse in Hamilton started stocking slippers, D & D's had to stop. The Warehouse was selling them for less than the shoe shop used to buy them for. But in a twist, "Now the suppliers can't supply at the price The Warehouse is selling them for, so The Warehouse stopped getting those slippers." He shrugs. "The shoe shop's surviving - it's got good stock. But we just need a bit more foot traffic."

"The Warehouse is a way of life for countless New Zealanders. We make a difference to people's lives, especially family life, by making the desirable affordable." - The Warehouse core purpose

"In everything we do, we're driven by a common mission: to improve the quality of life for everyday people around the world." - Wal-Mart website

Call it the Wal-martisation of New Zealand. On once-pastoral town fringes and in far-flung suburbs, see the monolithic malls and super-sized discount chains sprawl. Last year, the Property Council counted 151 shopping centres nationally. Their combined shop space alone totals 183 hectares. Australian companies such as Westfield own almost all our centres, with the notable exceptions of the Palm Shopping Centre and Ngai Tahu's Tower Junction mega-centre, both in Christchurch. Then there are the big boxes: 87 Warehouse stores, 43 Warehouse Stationery stores, 38 Briscoes stores.

Retail's biggest concentration of power lies in our supermarket chain duopoly. Foodstuffs, a privately owned New Zealand co-operative, gives us New World, Pak'N Save and Four Square and claims 54 per cent of the supermarket market. Progressive Enterprises, owned by Australian's second-biggest retailer, Woolworths, gives us Foodtown and Woolworths and claims the other 46 per cent market share.

We spend $11 billion a year at the two supermarket groups - nearly $1 in every $10 spent overall. Is all this just the latest phase in retail's inevitable evolution? A bargain-basement boon for low-income shoppers?

Or is it a retail cancer poisoning our small businesses, our towns, our land, increasingly bleeding profits out of New Zealand and turning the screws on local suppliers?

Warren Snow managed the Tindall Foundation, The Warehouse founder Stephen Tindall's charitable arm, until he grew deeply disillusioned by the Red Sheds' impact.

Now he heads sustainable-development group Envision that helps small businesses fight back. "We have allowed a destructive model of retail sprawl to crawl over the land, where mega-retailers battle amongst themselves for market share by selling ever-cheaper, non-repairable, unrecyclable, sweat-shop-made junk that all ends up in our landfills. Cheap junk for quality of life - what a bargain!"

And it's no thanks, he says, to the Resource Management Act and Environment Court, where the parties with the deepest pockets tend to win protracted legal wrangles.

Meanwhile, main streets that used to be the heart of their community, where shopkeepers were in the same sporting clubs and school committees as their customers, where locals could get most of their daily needs, are now colonised by some mix of bargain-bin stores, takeaways, bric-a-brac shops and cafes for tourists and chain stores. (At least chain franchises retain a kind of local ownership, Snow adds.)

We've already seen the first wave of casualties from The Warehouse revolution, he says. But wait, there's more. "Buoyant farming and tourism of the last few years have stopped many town centres from declining into dead ghost towns, but if these twin pillars collapse for any reason, there will be a second wave of small business closures... in a long-term Wal-martisation (read pauperisation) of the New Zealand economy."

He's turning his attention to helping local retailers "claw back business that the big guys took from them" by pushing their advantages: their profits go back into the community, they participate in the social life of the community, they know their customers' needs, and they can provide genuine service and product back-up.

Laila Harre, head of the National Distribution Union, believes the jury's still out on the impact of big retailers on local economies. But it's a different story for suppliers. "As retailers become bigger, they're dictating terms of supply in a way that's unprecedented." Most pressing, she argues, is the threat our supermarket duopoly poses to New Zealand food producers. Harre is worried that we're underestimating it.

Woolworths Australia is particularly aggressive when it comes to driving down wholesale prices, she says. Local producers who can't weather the squeeze on their profit margins lose out. And it goes wider. "If we can't produce for the domestic market, we won't have the base for export."

Harre says we're a way off the kind of food-plus-general-retail domination of United States titan Wal-Mart.

The Warehouse Extra, which includes a supermarket, is a baby next to the Wal-Mart. But a step in that direction looms in the shape of either Woolworths Australia or Foodstuffs buying a controlling share in The Warehouse. Both supermarket chains have sought Commerce Commission clearance to make their bids, and the authority has promised a decision in coming weeks. Harre adds that if either gets the go-ahead, this would quash the threat to the duopoly.

There's speculation that Wal-Mart may get a foothold in New Zealand through buying parts of the Coles Group, the remnants of Coles-Myer, Australia's biggest retailer, which would mean more profits going overseas. The group is Kmart's parent company.

Wal-Mart has been widely attacked for shutting out unions, crushing local stores, playing hardball with suppliers, paying low wages and providing poor working conditions - all criticisms vehemently denied by the company. Says Harre, "If Wal-Mart gets a stake in New Zealand through Kmart, then I think we need to be very afraid."

These are tough times in the rag trade. Mainly because of poor summer weather that discouraged people from buying lightweight fashion clothes and sportswear, the bigger stores are coping with what is regarded as one of the more challenging periods seen in New Zealand retailing for many years.

Hallenstein Glasson, Postie Plus, Briscoes subsidiary Rebel Sport, The Warehouse, Pumpkin Patch and Hellaby Holdings have all seen their profit margins under pressure. Most reported sales were unexpectedly low due to the wintry weather up to Christmas. They then felt compelled to slash prices drastically in New Year sales to move unwanted and soon to be out of fashion stock.

This rush of sales and heavy discounting after Christmas was presumably the reason the Statistics Department reported a stronger than expected rise in retail sales in January, a factor that led the Reserve Bank to lift interest rates. Statistics reported that total core sales rose by 1% in January. At the time, economists said this was due to people having more money in their pockets due to full employment, lower petrol prices and savings coupons from supermarkets that cut up to 20 cents a litre from the cost of filling a car.

However, the latest crop of retail profit results suggests that few stores were actually making much money from their efforts to quit stock.

There are also signs that some consumers are feeling constrained about spending. Rising interest rates must also be starting to bite. In a March report, the ANZ Bank said Aucklanders had been spending less in the shops, a trend that extended to Wellington. In other centres, shops were benefiting from higher dairy prices and lifts in some other farm exports.

The latest round of first-half reports showed a marked change from the generally positive results reported this time last year. As an example, in March last year Hallenstein Glasson announced a stunning 29% rise in earnings. On Monday, they reported an 8.6% drop in earnings to $10m, though this was in line with earlier warnings from directors that they were finding trading difficult.

Hallenstein Glasson said revenues of $110.7m were 1% ahead of this time last year. However, there had been a drop of 7% in same store sales in Australia and New Zealand. Earnings from its Australian stores also suffered from having to cope with a high NZ-Australian dollar exchange rate.

Carolyn Holmes of ABN Amro said this result highlighted the swings and roundabouts in apparel retailing. Next year could easily swing the other way for Hallenstein Glasson. She raised her target price from $5.42 to $5.52.

Postie Plus lifted first-half sales by 12.5%, helped by new store openings. However, it recorded a small $500,000 loss, compared with a profit of $700,000 in the same period of last year. Analysts said the company cleared summer stock earlier than usual at low prices to create space for higher profit margin autumn and winter ranges.

Hellaby Holdings - owner of the BBQ Factory, Number One Shoe Warehouse and Hannahs - said trading had been very difficult due to competitive pressures caused mainly by adverse weather conditions. The group sold its Rodd & Gunn chain last July. Hellaby's other subsidiaries reported mixed fortunes - its automotive division, which includes Brake & Transmission, did well, but its industrial group was hit by strong competition. Overall, Hellaby's first-half tax-paid profit fell 70% to $2.8m, which was in line with previous profit warnings from the company.

While most shareholders now consider Pumpkin Patch a global player, it retains an important local presence, with 50 stores, including an extra four opened in the past year. First-half sales in New Zealand rose by 3.5% to $31.1m, but ABN Amro estimates that sales in the average store fell by 2.7%.

Pumpkin Patch's biggest problem was in Australia, where it encountered difficult trading conditions, and profitability was affected by costs associated with store openings. Earnings before interest and tax rose by a modest 3% to $16.3m. But the Australian wholesale division did better than expected. Pumpkin Patch's best result was in the United States, where it has opened 20 stores over the past year. First-half sales there rose 344% to $US7.1m ($9.97m), much better than analyst expectations. Results from other countries, including the United Kingdom, were in line with expectations.

You can't keep a top retailer down. Since 1990, when Rod Duke bought control of Briscoes, he has transformed it from a small chain of loss-making shops offering a sparse range of tawdry goods into one of the country's most upmarket and successful retailing groups.

It seems as if the homeware stores which bear the Briscoe name may be reaching the end of their strong growth phase, which has seen their development into a chain of 37 attractive shops in major centres. It plans to open only one new store a year over the next few years till it reaches between 40 and 45.

But that doesn't mark the end of Duke's ambitions. He opened six new Rebel Sport stores in the past year, bringing the total to 27, and intends to open a further one or two over the next few years until he reaches about 35. Rebel Sport's Australian operations are in the throes of a takeover battle, with major institutions holding out for a higher offer, although this does not affect New Zealand. In 1990, Duke negotiated a limited franchise agreement with Rebel Sport Australia, with the first store opening in Auckland in 1996. He gained exclusive rights to the Rebel Sport brand in this country in 2005.

Duke says there is great potential in the Living & Giving chain, which he bought from Eric Watson late last year. This chain of nine stores had never performed well, and was said to have been operating around break-even at the time of the sale. Duke believes they have a lot of promise, and plans to open 11 more in the next two years till he gets to 20.

He also intends to expand the upmarket Urban Loft chain, after the success of the first one in Auckland. A second could be opened soon in Wellington or Christchurch.

The ongoing expansion plans are being encouraged by signs that, after the odd rough patch, the company has developed successful strategies to win customers in a small, highly competitive market.

The group has just completed another successful year - regarded as a good effort after a difficult and testing second half. Other retailers who have reported challenging trading - mainly because of poor, cold early summer weather - include The Warehouse, Hellaby Holdings, owner of Hannahs and No1 Shoe stores and the BBQ Factory. In contrast, Michael Hill International, who had been finding business difficult earlier in the year, surprised the market by saying it had a bumper Christmas.

Clothing and footwear shops seem to have been the hardest hit. This seems to have affected Rebel Sport - the part of the group most exposed to selling sports apparel and shoes. Duke said: "When it is snowing in the South Island it is very difficult to sell outdoor shirts and shorts at Rebel."

There are indications the group undertook a sales programme to sell such seasonal stock and maintain market share. Sales at Rebel Sport rose by 5.4%, and Briscoes Homeware sales were up 9.8% in the latest period.

The group reported a full-year tax-paid profit of $26m, broadly in line with a forecast it made in January. Sales were up 8.3%, mainly due to new store openings, and a 10.4% increase in retail space, or selling area. Like other retailers, Briscoes is facing a substantial rise in rents: Carolyn Holmes of ABN Amro estimates rent per square metre rose by 4.3% in the past financial year, and she is forecasting this will rise another 3% this year.

Duke warned after the result that the group faces another tough year. He hopes to consolidate profitability after what he said had been the most challenging three years the company had ever faced. Immediate worries were petrol prices, household expenditure, interest rates and the housing market.

Rodney Deacon of Goldman Sachs JBWere says the outlook for earnings growth in the short to medium-term looks subdued, driven mainly by factors including lower household consumption, the kiwi dollar and a slowing retail environment. Goldman Sachs JBWere has a short-term market perform and long-term hold recommendation on the stock valuing it at $1.66.

First NZ Capital believes the company will report similar earnings this year and has a target price of $1.72 on the shares. ABN Amro rates it a hold with a target price of $1.84. UBS has a neutral recommendation and a price target of $1.71.

Institutional investors unhappy with a A$368 million ($423 million) takeover offer for Australian sporting goods and clothing retailer Rebel Sport are edging closer to blocking the deal.

Two of the three institutions that have said they think the offer from private equity firm Archer Capital is too low have increased their stake.

The three combined hold 24.85 per cent of Rebel, and the deal will require 75 per cent approval at a shareholders meeting next Thursday.

If the takeover falls through, it would be the second private equity deal in Australia to do so within weeks, as institutional shareholders increasingly resist deals they consider opportunistic and worry about reinvesting funds into expensive markets.

Earlier this month key shareholders in travel retailer Flight Centre rejected a A$1.6 billion private-equity-backed management buyout.

Perpetual Investments said yesterday it had increased its stake to 10.7 per cent from 9.6 per cent.

Perpetual told Reuters last month it was planning to vote against the deal, but was not available yesterday to comment.

Another of the opponents, Paradice Investments, on Thursday increased its stake to 7.7 per cent from 6.6 per cent. Paradice was also not available to comment.

Invesco Asset Management holds 6.5 per cent of Rebel and is also likely to vote against the deal.

"They [the institutions] are trying to block the bid. They think it's worth more than that, a combined Amart and Rebel business would be attractive and would have a very large sports apparel business," said a retail sector analyst who asked not to be identified.

Rebel has about 60 stores and Archer managed funds already majority own the Queensland-based Amart All Sports chain, with over 70 stores.

Rebel's largest shareholder, Harvey Norman, which holds about 52 per cent, is in favour of the proposal and has said it would be foolish to block the deal.

RETAILING, PROPERTY

Worth: $254 million

THERE MAY a retail downturn looming but it hasn't affected Rod Duke's Briscoe and Rebel Sports groups. Latest quarterly results showed sales and profits up 10% against the prevailing retailing trend. "Business is good, we're happy," he said. The firming share price means that Duke's 75% holding has increased in value again after losing about $100 million in value a couple of years ago. This corporate shopkeeper is looking forward to opening new Briscoe and Rebel Sports stores in New Plymouth, among seven openings planned for coming months.

Duke also owns properties but it's hard to track them down because he uses nominee companies to stop nosy researchers finding out about them, suggesting he is worth considerably more than his Briscoe shareholding. "You would too, wouldn't you mate?" says the former Ocker, who came over this side of the Tasman in the 1980s. He and his wife enjoy golf and he has a large wine cellar to complement the gourmet recipes his wife likes to prepare.

2005: $220 million

Rodney Adrian DUKE, 52

Retailing

Worth: $320 million min.

RETAILER EXTRAORDINAIRE Rod Duke was headhunted by the Dutch owners of Briscoes in 1998. His job was to prepare the fledgling retail chain for sale.  But Duke decided instead to buy the business himself. He paid a six-figure sum for the company and set about building it into the mammoth retailer it is today.

Fifteen years of hard slog has paid off for Duke, with Briscoe Group listing on the Stock Exchange in 2001.  Also part of the group, the Rebel Sport chain is no wimp on the retail front, with the company posting $89 million in sales this year.

Despite his success Duke lives a relatively quiet life. While his home in Auckland's plush Remuera suburb is no shack - the property has a government valuation of $5 million - he claims to have no interest in the flash boats, private jets and holiday homes much loved by his wealthy counterparts.

Besides his interest in Briscoe Group, Duke is a director of Cellarsoft, an internet-based library of sorts that provides members with up-to-the-minute information on wine.

He says his involvement in the company is as a mentor to the two young entrepreneurs who thought up the concept, Stuart Parker and Jeremy Turner. Duke is also reported as owning industrial properties in South Auckland.

Caption - GOING THE DISTANCE: With Briscoe Group Rod Duke has made himself - and many investors - considerably wealthier