The Warehouse Group: Why the Red Shed Is Still Fighting for Its Margin

The Warehouse Group is a case study in what happens when a category-defining discounter loses its price leadership and spends a decade looking for a replacement identity. This article explains how the Red Shed was built, how the group makes money across its three brands, why its diversification into outdoor gear and online marketplaces failed, what the FY26 numbers show and what Kmart, Temu and Amazon mean for its future. It is part of the New Zealand Company Stories hub.

How did The Warehouse begin?

Stephen Tindall opened the first Warehouse on Auckland’s North Shore in May 1982, selling imported general merchandise at prices that undercut department stores. The slogan “where everyone gets a bargain” and red-painted big-box stores made it a national institution within a decade.

Tindall’s timing was good. New Zealand was about to dismantle import licensing and tariffs, and a retailer willing to source directly from Asian factories could sell clothing, toys and homeware far below the prices charged by established chains. The Warehouse expanded into provincial towns that had never had a large-format discounter, often becoming the biggest shop in town.

The company listed on the New Zealand stock exchange in 1994. For the next decade it was the country’s most admired retailer, known for staff share schemes and for putting stores in places national chains had ignored. The founder’s later career in venture investing and philanthropy is covered separately in the profile of Sir Stephen Tindall.

The first serious setback came abroad. The Warehouse entered Australia in 2000 by buying two discount chains, rebranded them, and sold the business in 2005 for about A$92m after it failed to gain traction against Kmart, Big W and Target. The lesson, that the formula worked because New Zealand lacked competitors rather than because it was unbeatable, would return 15 years later at home.

How does The Warehouse Group make money?

The group earns a retail gross margin of about 32.6% on roughly NZ$3bn of sales across three brands: The Warehouse general merchandise stores, Warehouse Stationery and the electronics chain Noel Leeming. Profit depends on keeping operating costs below that margin.

The Warehouse is the largest brand, with sales of about NZ$1.8bn a year. It sells apparel, homeware, toys, health and beauty and a growing range of packaged groceries. Noel Leeming, bought in 2012 for NZ$65m, sells about NZ$1bn of appliances, computers and phones and earns additional income from services and installation. Warehouse Stationery contributes a little over NZ$200m, and many of its outlets now sit inside Red Sheds.

The arithmetic is unforgiving. In FY26 the cost of doing business was 31.8% of sales, leaving under a percentage point of margin before interest and tax. A one-point swing in gross margin or in costs is worth about NZ$30m, more than the whole year’s operating profit of NZ$22.6m. That is why management’s stated target is to push the cost ratio below 31%.

Online sales remain modest, at about 7% of the total, well below the 20% achieved by Briscoe Group, whose tighter range and higher margins make a useful contrast.

Who owns and controls The Warehouse Group?

The founder still does. Sir Stephen Tindall holds about 27% of the shares and the Tindall Foundation about 21%, giving the two close to half the company. The James Pascoe Group, a private retail family business, holds roughly a further 20%.

That register leaves a small free float and makes the listed company behave more like a family-controlled business with public minorities. It has protected the group from opportunistic takeover, and it has also meant that strategic change depends on the views of two large private holders.

The ownership question came to a head in July 2024, when Tindall and the Australian private equity firm Adamantem Capital approached the board about acquiring the shares they did not own. Tindall spoke of positioning The Warehouse as a third grocery player. The board said the approach did not amount to an offer, and the talks were abandoned in early August 2024.

Governance has since been reset. Long-serving chair Dame Joan Withers has been succeeded by John Journee, a former executive of the group who also served as interim chief executive in 2024, and Mark Stirton now leads the business as chief executive.

Why did Torpedo7 and TheMarket fail?

Both were attempts to buy growth outside the core, and both lacked the scale to cover their costs. Torpedo7 was sold for NZ$1 in early 2024 and the online marketplace TheMarket was closed the same year.

The group took a 51% stake in the outdoor and cycling retailer Torpedo7 in 2013 for about NZ$33m, later buying the rest and merging it with R&R Sport. Reports at the time of the exit put the total paid at around NZ$52m. It expanded from an online specialist into a chain of large stores, a move that added rent and inventory just as a post-pandemic glut of bikes and outdoor gear hit prices. The buyer, Tahua Partners, paid a single dollar.

TheMarket, launched on 1 August 2019, was meant to be New Zealand’s answer to Amazon: a third-party marketplace that would use the group’s logistics and customer base. It never reached the volume a marketplace needs, and it competed for attention with the group’s own websites. In March 2024 the company said it would sell or close it.

The cost showed up in FY24. The group reported a net loss of NZ$54.2m, sales fell 6.2%, and chief executive Nick Grayston, who had led it since 2016, left in May 2024. Withers called the result “not acceptable”.

What do the FY26 results show?

They show a business that has stopped the bleeding without yet fixing its main brand. Sales were NZ$3.0bn, operating profit rose to NZ$22.6m from NZ$1.3m, and net profit was NZ$11.2m against a NZ$2.8m loss a year earlier.

Reported sales fell 1.9% because FY25 had 53 weeks; on a comparable 52-week same-store basis they rose 0.4%. Gross margin improved by 40 basis points to 32.6%, and the cost of doing business fell by NZ$29.8m. Operating cash flow jumped to NZ$193.5m, helped by tighter inventory, and net debt dropped from NZ$96.1m to NZ$17.0m.

The split by brand is the important part. Noel Leeming almost doubled its operating profit to NZ$21.8m and Warehouse Stationery did the same to NZ$15.9m. The Warehouse narrowed its loss from NZ$12.2m to NZ$7.5m. The group’s largest brand, with more than half of sales, is therefore still subsidised by its two smaller ones.

The board declared no final dividend, and management said early FY27 sales were broadly in line with the prior year, with conditions expected to stay difficult.

How is management cutting costs?

By shrinking head office and outsourcing back-office work. In February 2026 the group confirmed that about 270 head-office roles would go as technology, accounting, payroll and call-centre functions moved to Tata Consultancy Services.

The programme was signalled in November 2025 as a “cost reset”. The company put redundancy costs at about NZ$6m in FY26, with labour savings of NZ$3m to NZ$4m in the first year, rising to roughly NZ$17m a year by FY31 and about NZ$70m over the five-year contract. An earlier agreement with the same provider, announced in September 2025, was expected to save a further NZ$40m over five years.

For a retailer employing about 10,000 people the cuts are small in headcount but large in symbolism. They mark the end of the Grayston-era ambition to build an integrated digital ecosystem in-house and a return to the proposition of running shops cheaply.

Why is Kmart beating the Red Shed?

Kmart sells a narrower range of own-brand products designed and sourced by a much larger group, at prices The Warehouse cannot match. Kmart NZ reported revenue of NZ$1.02bn and net profit of NZ$102.1m in the year to June 2025 from just 28 stores.

That profit, about ten cents in every dollar of sales, compares with a loss at The Warehouse on sales of about NZ$1.8bn from roughly three times as many stores. Kmart, owned by Australia’s Wesfarmers, benefits from buying volumes across Australasia and from a strategy of very low, stable prices on own-label goods rather than promotions on brands.

The Warehouse’s response has been to cut prices on everyday items, extend its grocery range and lean on its footprint in smaller towns where Kmart is absent. Its Q1 FY26 update showed the cost: average selling prices fell 2.4% and gross margin slipped even as units sold rose.

Online, the pressure comes from Temu and Shein, which ship low-priced goods direct from China, and from Amazon, which serves New Zealanders through its Australian site. Each erodes the reason for visiting a general discounter. The outdoor category the group exited is itself under strain, as the account of KMD Brands shows.

Could The Warehouse become a third supermarket?

Not in its current form. The Warehouse sells packaged groceries and has trialled fresh produce since 2023, but it lacks the chilled supply chain, store layouts and supplier terms needed to compete for a weekly shop against two entrenched groups.

The idea has political appeal. The government has invited new grocery entrants and legislated faster consenting, and Tindall’s 2024 approach was framed around that opportunity. The economics are harder. Grocery net margins are thin, the incumbents control distribution, and the wholesale access regime has delivered little volume, as explained in the article on the supermarket duopoly.

Grocery does serve a narrower purpose: it brings shoppers into the store more often. Milk, bread and pantry staples at sharp prices lift visit frequency, which matters when foot traffic is flat or falling. Management’s recent trading updates, however, make no claim to be building a supermarket chain.

What are the main risks for The Warehouse Group?

The principal risks are continued share loss in general merchandise, dependence on Noel Leeming’s cyclical electronics earnings, a consumer economy that remains weak and a concentrated share register that limits strategic options.

Noel Leeming’s profit is tied to replacement cycles in phones, computers and appliances and to housing activity. A soft year in electronics would expose the Red Shed’s loss. The chain is investing in a flagship store on Queen Street in Auckland to defend its position against Harvey Norman and JB Hi-Fi.

Leases are the second exposure. A network of large stores carries long rental commitments, so closing unprofitable sites is slow and expensive. The third is capital: with no dividend and a low share price, raising equity would dilute the founder’s holdings, and debt capacity is limited by thin earnings. The relative weakness of the local share market, discussed in the piece on the NZX, adds to the difficulty.

What can founders and CFOs learn from The Warehouse Group?

The main lesson is that a price-leadership position must be defended with structural cost advantage, and that diversification funded by a weakening core usually destroys value twice: once in the acquisition and again in the neglect of the original business.

1. Know what made the formula work. The Red Shed thrived when it had no large-format rival. Australia in 2000 and Kmart at home showed the advantage was situational.
2. Price adjacencies honestly. Torpedo7 cost tens of millions and sold for a dollar; a marketplace without scale is a cost centre.
3. Watch the cost ratio, not the story. With a 32.6% gross margin and 31.8% cost base, every basis point is strategy.
4. Segment reporting tells the truth. Group profit hid a loss in the largest brand; boards and investors should insist on brand-level numbers.
5. Controlling shareholders cut both ways. They give patience, and they can delay hard decisions about the core.

Founders can find related case studies in the Founders Hub.

What happens next for The Warehouse Group?

FY27 will test whether the Red Shed can break even. The outsourcing savings will build, the balance sheet is close to debt-free, and management has guided to a difficult market with sales tracking level with last year.

Three developments are worth watching. The first is whether The Warehouse brand reports an operating profit, which would show that range and price changes are working rather than merely cost cuts. The second is the store network: any decision to close or shrink Red Sheds would signal acceptance of a smaller business. The third is ownership. The 2024 approach showed that the founder is willing to consider taking the company private with a partner, and a stronger balance sheet makes such a deal easier to finance.

The Warehouse Group has bought itself time. It has not yet answered the question Kmart poses: why a shopper who wants the lowest price on a basic item should choose a red shed over a cheaper one.

Frequently Asked Questions