Warehouse’s new financial services brand

the warehouseKiwis now have access to lower cost options for credit cards, travel, health, car, home and contents insurance with the launch of Warehouse Money, The Warehouse’s new financial services brand. It offers two credit cards and five new insurance products.

The Warehouse also announced plans to launch a pre-pay mobile brand later this month.

The Warehouse aims to grow its lending book to $600 million within five years at which points it expects the financial services arm will add $30 million to earnings before interest and tax. The Warehouse posted a 5.9 per cent drop in profit last year and is looking to generate earnings growth away from its traditional retail base following a $100 million “refresh” program for its The Warehouse discount stores, the acquisition of Noel Leeming and Torpedo 7, and its move into online sales.

Chief financial officer, Mark Yeoman, said the company has offered financial services for the past 14 years in a joint venture with Westpac Banking Corp, but after the 2013 acquisition of Noel Leeming it decided to take it in-house and capture the value.

“The short-term driver is to diversify an earnings stream for the group that is away from the retail business,” Yeoman said. “It allows us to tailor financial services to support our retail businesses which is hard to do when you are white-labelling generic products.”

The Warehouse reported a $2.8 million loss from its financial services arm in 2015 and Yeoman said it had not yet put a number of expected losses for 2016. He said it could take two years before The Warehouse Money makes money but profits would then be put back into the business to ensure it hits the targeted scale.

The group bought Diners Club NZ for $3 million last year and last month spent $7.3 million buying Westpac out of its joint credit card lending venture. It provided the loans for the company’s Red Card which it stopped issuing in October. That move gave it a loan book of about $57 million and 42,000 cardholders.

Yeoman says the $115 million in equity it raised last year is expected to provide sufficient funding to meet the $600 million loan book targeted by 2020, and it had also arranged a subordinated debt facility with Westpac that would cover the remaining 80 per cent of the loans.

The two The Warehouse-branded Visa credit cards have no establishment or annual fees and charge an interest rate of 19.95 per cent. The Warehouse Money card offers shoppers a five per cent discount in all Red Sheds stores and online, including sales items. The Purple card is aimed at consumers who favour rewards schemes. The rewards dollars are redeemed at The Warehouse stores.

The retailer has partnered with insurance providers nib and Vero to provide five new insurance products covering travel, health, car, home, and contents insurance. It already offers pet insurance in conjunction with Petplan.

Yeoman, who is also CEO of The Warehouse Group Financial Services, said the financial products are designed to be simple to understand and will “help us to develop a leading NZ retail financial services company”.

Tania Benyon, CEO of group sourcing support, said pricing details for the group’s planned pre-pay mobile offering in conjunction with partner Two Degrees Mobile will be announced on November 23.

She said they had been in talks with all three major telecommunications providers over the past 18 months but felt 2degrees was the best fit for its customer base.

Benyon would nott reveal the targets the group has for The Warehouse Mobile but said pre-pay already accounts for two-thirds of the mobile market.

The phones and pre-pay packages will sell only in the Red Sheds though may later be extended to The Warehouse Stationery. The retailer will continue to sell other pre-pay brands and phones in its existing range.

Yeoman said there was an opportunity to look at bundled offers between the financial services arm and The Warehouse Mobile at some point in the future.

The Warehouse also announced a first-quarter sales update today, with sales up 7.7 per cent to $634.5 million and improved margins at its discount chain ahead of the key Christmas trading period.

The Warehouse stores, which make up 59 per cent of total sales, increased revenue 4.1 per cent in the quarter while Noel Leeming first-quarter sales jumped 14 per cent to $163.9 million, as it cycled a weaker year-earlier quarter impacted by limited stock in smartphones and a digital switchover.

Group CEO, Mark Powell, said it had been a strong start to the year but the most crucial period for the retailer was the second half which is why it does not provide full guidance on its full-year result until after the Christmas period.

The shares rose 1.5 per cent to $2.75, and have dropped 13 per cent this year.

The Warehouse Money products and services will be available for purchase online at https://www.warehousemoney.co.nz via post and over the phone, and customers will be able to get all the information they need to know at any The Warehouse store.

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