Wesfarmers CEO Rob Scott: Rate cut won’t solve all of Australia’s problems

Rob Scott says any sustained improvement in economic conditions will require a moderation of government spending and policy changes that address supply side constraints.

Wesfarmers chief executive Rob Scott.

CEO SURVEY 2025: FULL COVERAGE

Economy

How would you rate the momentum of the Australian economy as we head into 2025? Official forecasts have Australia trimming interest rates from the first half of calendar 2025, is that consistent with your view? What are you seeing around inflation in your own business?

The Australian economy continues to be challenged by high inflation. This is not only impacting household spending but is placing pressure of businesses that are dealing with higher costs, such as wages, rents, electricity, gas, insurance and supply chains.

We remain cautious looking ahead, since any sustained improvement in economic conditions will require a moderation of government spending and policy changes that address supply side constraints. The housing crisis is an example where lack of availability of skilled trades, cost of doing business challenges for builders and complexities with planning approvals are making it harder to meet the housing needs of our growing population.

Against this backdrop – of high inflation, supply-side challenges and elevated government spending – it is difficult for the Reserve Bank to lower rates. Most Australians would welcome an interest-rate cut, but a decrease will not solve all the issues that are holding back the nation today.

As we have seen in other nations, it takes time for interest rate movements to translate into changes in household spending and business investment, as these movements have a lag effect. We are focused on areas within our control – ensuring our businesses are operating as efficiently as possible and our balance sheet is strong to deal with a range of economic scenarios.

Outlook

What excites you heading into 2025? Are you likely to increase, hold steady, or trim your investment spend?

Australian businesses are ready to increase investment should the government create conditions that are conducive to this. As history shows us, Australia’s economic success is linked to the success and health of the private sector. Only with the right regulatory settings can Australian businesses have the confidence to invest to find better, smarter ways of working and ultimately improve the nation’s prosperity. Were regulation to be wound back to improve costs and approval times, we would expect an increase in investment in Australia, from both domestic and foreign capital, creating more higher paying jobs and national prosperity.

At Wesfarmers, I believe our best investment opportunities are in our own businesses. We have many potential growth options in our existing divisions that will deliver shareholder value over the long term, including across our larger businesses – Bunnings, Kmart Group and WesCEF.

At our retailers, Bunnings, Kmart Group and Officeworks, we have a relentless focus on providing customers with everyday low prices. We know this is only achievable by investing to improve productivity and reduce our costs of doing business. For example, this includes ongoing investment in our supply chains, e-commerce and data and digital capabilities, technology and inventory management, among others.

At our WesCEF business we remain focused on commissioning our lithium hydroxide refinery in mid-2025, as well as considering possible expansions of sodium cyanide and ammonium nitrate production.

Another key opportunity that excites me is the possibility in our health sector. If we get it right, there is enormous upside to the impacts it could have for Australia. Right now, the cost of healthcare is rising as our population ages and as we continue to endure the lasting impact of Covid on metabolic health. Delivering low-cost healthcare in smarter ways, particularly in the regional areas and without compromising care standards, can help turn that around. We can do that by expanding scope of practice for pharmacists and registered nurses, as well as embracing digital health solutions.

Improving the health and wellbeing of Australians will also have a productivity multiplier for the economy.

Reform

As we move into an election year, in your mind, what’s the single biggest lever that can/should be used to lift Australia’s competitiveness or productivity? This could be across any area from labour market, tax reform, training or other areas to encourage investment.

We are now at a tipping point with productivity – if we don’t improve productivity now, we risk becoming the unlucky country later. Action to turn this around needs to be a collaborative Team Australia effort – government working hand-in-hand with business, to improve outcomes for all Australians.

The private sector should be driving improved productivity, but this is challenging unless the government creates the right settings for businesses to invest and create jobs. The productivity enhancing reforms of the 1990s showed us that when the government gets the settings right, businesses are ready to invest and do the heavy lifting to drive our economy forward.

Governments must consider slowing its own spending, this will help create capacity for the private sector by freeing up workers and resources.

We would love to see all levels of government embrace a reduction in regulation and red tape – these added imposts are slowing investment and making it more expensive, particularly in relation to compliance costs and IR processes.

Creating incentives for states to improve policy changes will also drive productivity. This in turn, will benefit the Federal Government through improved corporate earnings and more wages.

Geopolitics

Will a Donald Trump presidency have a potential impact on your business or sector (tariffs or streamlined regulation)? Does geopolitics drive a bigger part of your decision-making?

We expect policies in the US to focus on improving the competitiveness of their domestic businesses. While we are in wait-and-see mode for any changes to policy, there may be lower taxes and reduced regulation – all designed to make US businesses more productive.

That is a risk for Australia as we continue to face lagging productivity – a more competitive US attract more capital. Australia’s government needs to provide our businesses with similar support, ensuring we can secure our share of investment from global markets.

We’ll also be closely watching for any impact of a Trump presidency on US-China relations, including changes to tariffs, given Australia’s critical relationship with China. Any impact – positive or negative – will impact Australia’s exports and our economy.

Geopolitical shocks are difficult to predict. As a business, we need to understand where our vulnerabilities are and focus on controlling the controllables. The best strategy we can have is a strong balance sheet. That enables us to withstand geopolitical shocks and to keep investing for the long term, even during tough times. That creates a more competitive position when things improve.

People

Has your organisation’s approach to flexible working – including working from home – evolved during the year. Is this likely to change further into 2025?

Across Wesfarmers and our divisions, flexibility remains a part of our workplace and is an important part of how we attract and retain talent. Many jobs cannot be done remotely, such as roles in our retail stores, distribution centres and chemical manufacturing.

There are many roles that benefit from the creativity, culture and development associated with face-to-face engagement. Our highest performing teams across the Group all embrace regular face-to-face engagement and this supports better communication, improved business outcomes and critically, the development of younger team members.

There is no doubt that people who are in the office more often than not, work cross-functionally, build relationships and learn from those around them, develop their careers at a faster rate.

Technology

Where is your organisation along the AI journey – is it in the developmental stage, or are you now using the technology at scale across your business? If so, are benefits matching the promise?

Our approach to using artificial intelligence has been to focus on the desired outcome of increasing efficiency and improving the competitiveness of our businesses. Proactively, we have made significant investments in this area and are advancing well on our journey.

For example, we have invested in a new AI-enabled technology at Bunnings that we call ‘Ask Lionel’. Through this technology, our in-store team members receive real-time product information through their headsets. This is useful to answer specific customer questions – a team member can “ask” a question live, and receive real-time information, such as warranty terms or detailed production information.

This is a smart and considered use of AI that directly improves the customer experience and is more efficient for our team. While this technology is early stage, the initial feedback is very positive from both our customers and our Bunnings team.

Across our businesses we are also considering other applications across many functions that will ultimately improve productivity, making our businesses more efficient.

Embracing opportunities that come from AI will allow businesses to be more successful. It can remove more of the manual and remedial tasks, creating more interesting and better paying jobs.