UC academic says Noel Leeming acquisition will strengthen The Warehouse

The Warehouse will strengthen its position in the New Zealand retail market of whiteware and consumer electronics following today’s announcement it has bought the Noel Lemming chain of 92 electronics and appliance stores, a University of Canterbury (UC) economics expert said today.

Its position as New Zealand’s number one retailer will definitely be strengthened as a result, UC’s Dr Laura Meriluoto said today.

``The Warehouse and Noel Leeming together control quite a large part of the market. I was really surprised that they made the announcement without applying for merger clearance with the Commerce Commission.

``They must have thought that the post-merger concentration in the industry will still be below the Commerce Commission safe harbour guidelines.

``As with any horizontal merger, this merger will result in further concentration in the market, which implies more market power to the Warehouse. Market power refers to the ability of a company to raise its price without losing significant market share.

``This type of merger is likely to be big enough to result in price increases in the market. This would be somewhat offset by any cost savings that the Warehouse will achieve with the merger.

``On a positive note, the free trade agreement between China and New Zealand has led to a gradual tariff reduction for Chinese imports of consumer electronics and home appliances during the past four years which has brought the prices down in New Zealand. I understand that there are still some tariff reductions ahead during the next year in this sector that will lead to further price reductions.’’

The Warehouse Group said in an announcement to the New Zealand Stock Exchange today it would pay $65 million for the Noel Leeming stores.

Noel Leeming Group will operate as a separate trading division. The Warehouse Group is comprised of 91 Warehouse stores and 59 Warehouse Stationery stores in New Zealand. The company has a turnover of $1.7 billion and employs over 9000 people.