‘Burning cash’ – insider on Mitre 10’s ‘horrific’ software system upgrade

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“Horrific” is how national retailer Mitre 10’s software system upgrade has been described by a person involved with the project.
He said only a single store was using the new cloud-based system after a gruelling three years and people were being made redundant at head office.

“Only Ponsonby –
which is the pilot because it’s owned by the co-operative,” said the insider, who expressed extreme disappointment in the progress and cost of the upgrade so far.

The person pointed to the latest annual result for the 85-shop business as an example of the crippling cost at the co-op, due to hold its AGM next Thursday afternoon in the capital.
The insider requested anonymity as he was not authorised to speak publicly about the project.
Mitre 10 (New Zealand) recorded a $98.9m loss for the June 30, 2024 year, up on 2023’s $50.7m loss.
Bank debt has blown out from $68.5m to $161.8m and auditors PwC noted the new IT system’s toll on the chain.
“The higher debt level resulted from significant expenditure in the customisation and configuration of cloud-based software,” PwC wrote in the accounts, out last month.
Andrea Scown, Mitre 10 (New Zealand) chief executive, also acknowledged “a complex programme of technology replacement and transformation of the operating model”.
“We have publicly acknowledged the centralisation of accounts payable has come with its challenges this year.”
She also acknowledged the debt rise.
“Our debt has increased since commencing the transformation programme as we knew it would.
“We have renegotiated our debt facilities through until the end of December 2025 and have initiatives under way to support further cost control including changes at our support centre and the sale of several non-strategic property assets which will allow us to re-cycle capital and reduce debt,” she said.
The auditors also cited disruptions to Mitre 10’s operations from that IT upgrade.
Mitre 10 disclosed discussions with its banker on its borrowings.
“Post year-end, Mitre 10 has engaged in negotiations with BNZ to extend the maturity dates of its bank facilities and revise certain covenants,” latest accounts from the company said in the latest annual report.
The retailer is introducing the cloud-based ERP software from SAP as part of a business-wide transformation named Programme One.
That is to refresh all IT systems used to serve Mitre 10’s stores in what is planned to result in a new technology stack.
The insider said because Mitre 10 was a co-operative, members had to fund the IT upgrade via the extra debt which was costing them dearly in interest payments.
“Some of the stores just don’t have any extra money. They’ve already reached the limits of their own debt covenants and they can’t pay any more.
“This has put the businesses that own Mitre 10s under a lot of financial duress. They’re meant to have SAP running in a lot of the stores but that hasn’t happened yet,” he said.
“And this comes at a time of the retail downturn, creating even more stress. This IT upgrade is over budget, well late and still burning cash.”
Scown said the IT upgrade had members’ backing although she also acknowledged they were paying for it.
“We have also introduced a technology levy to our members. It has been a tough year on our members with a persistently difficult trading environment and the ongoing pressure on margin and costs.
“Our members understand what we are trying to do and our focus on setting the cooperative up for the future. They want Mitre 10 NZ to get back to a strong balance sheet so we can invest in future strategic opportunities such as property investment and expansion.”
The insider said Mitre 10 (New Zealand) – the Albany-based head office – had about 500 employees but made several staff redundant lately.
“And there’s another round of redundancies across the support centre because the only way the business can cope with this cost is to reduce costs via salaries.”
Lisa Wilson, Mitre 10 head of external communications and PR based at head office, no longer works for the business.
Communications are being managed by external business Acumen.
Andrew Smith, the new Mitre 10 chairman, will front the co-op’s annual meeting to be held at 4pm next Thursday at Wellington’s Rydges Hotel.
The IT upgrade is expected to be a focus of discussion there.
Asked about that system upgrade, Smith referred inquiries to Jules Lloyd-Jones, Mitre 10’s chief marketing officer. It was Scown who responded, via Acumen.
Scown indicated the upgrade was crucial.
Co-operative members were future-focused and understood the significant additional functionality and operational support the transformation programme was enabling and how that would benefit them, their customers, supply partners and team, she said.
Scown also acknowledged the upgrade was higher than originally anticipated in 2021, but the budget has remained unchanged since the beginning of 2023.
The Ponsonby store was running the system, she said.
Covid and prolonged economic uncertainty at a time of the IT upgrade had complicated the “journey”, although she said the planned investment in transformation was well-advanced.
“Our strategy is now focused on strengthening our balance sheet and paying down debt. This will return Mitre 10 to a position where we have an investment envelope for future strategic options like property investment and expansion,” Scown said.
Scown also acknowledged layoffs.
“The team changes we have made at our support centre in the past year reflect our evolving workforce needs as we move through our strategic transformation programme and navigate a persistent difficult trading environment,” she said.
Anne Gibson has been the Herald’s property editor for 24 years, written books and covered property extensively here and overseas.
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