Big losses at Big W force big changes at Woolworths

Woolworths’ general merchandise chain is in a downward earnings spiral that is showing no signs of slowing.

CEO Sally Macdonald says Big W needs to narrow its range.

Australians love a bargain, and Big W prides itself on being the home of bargains, but for some reason the former are not connecting with the latter, leaving Woolworths’ general merchandise chain in a downward earnings spiral that is showing no signs of slowing down.

Big W again featured in a Woolworths (WOW) trading update for all the wrong reasons, once again the source of painful impairment charges as the latest CEO of the loss-making retailer, former Oroton Group boss Sally Macdonald, throws her decades of experience in the retail space at salvaging the merchandise chain.

In cold hard numbers, Big W has not lifted sales and earnings since 2013. Last year Big W’s earnings plummeted 25.3 per cent to $114.2m, with sales down 5.7 per cent to $4.1bn.

In fiscal 2014 it was much the same, as pre-tax earnings fell by just over 20 per cent. In 2013 pre-tax earnings only managed a 5.5 per cent lift.

Yesterday, in the latest of a string of restructure plans, it was announced that Big W will incur $151m in restructuring costs following a review by Ms Macdonald, who joined the business in January.

The business will book $43m in costs as it reworks sourcing, procurement, logistics and online, with dumped inventory and the exit from merchandise categories to cost another $31m. There will also be redundancy and IT costs of $12m.

There will be some store closures, with five out of 186 stores likely to shut in the next three years based on current poor trading performances, at or before their lease expiry.

Another 18 stores will book impairments on store assets and what Woolworths has termed “onerous’’ lease obligations, bringing total store impairments and related charges to $108m for 23 stores.

Yesterday Ms Macdonald put on a brave face, telling analysts Big W still had an “important’’ place among the nation’s discount department stores, but that radical changes were needed.

“In terms of how it is distinctive and sustainable going forward, that’s the work we have to do, we are making some impairments today on product and inventory .’’

She said Big W needed to narrow its range to compete better and take the fight to Kmart and Target, owned by Perth-based conglomerate Wesfarmers.

“We have over 150,000 SKUs, which is many more choices and many more brands than both of our competitors in Target and Kmart, but I think possibly we have too many of what we need, so we are simplifying the business … to offer a wider range of choice than our competitors but to do that in a more honed way,’’ Ms Macdonald said.