Wesfarmers boss Rob Scott says sticky inflation and rate fears spooking consumers

Wesfarmers boss Rob Scott says sticky inflation and chatter that interest rates could stay high, or even be raised this year, is weighing on the consumer.

Wesfarmers boss Rob Scott says the conglomerate’s stable of businesses are well positioned for growth. Picture: David Berrie

Wesfarmers chief executive Rob Scott, whose portfolio of retail businesses range from hardware and health to office supplies and clothing, says sticky inflation and fresh chatter that interest rates could stay higher for longer – or even be hiked again – are prompting consumers to rein in spending at the nation’s tills.

While this meant shoppers were becoming more value conscious as they hunt around for the best deal, it may boost Wesfarmers and its retailers such as Bunnings, Kmart and Officeworks whose low pricing and focus on value is resonating with stressed households.

Speaking to The Australian after presenting the annual Wesfarmers strategy on Thursday, Mr Scott said there was a marked change in consumer sentiment in the last month or so as stubbornly high inflation and talks of potential interest rate hikes spooked shoppers.

“Customers are still very value conscious and I think some of the some of the concerns of the last month that inflation may stay higher for longer, and it might take a bit longer for interest rates to come down, some of that news is weighing on consumers,” Mr Scott said.

“They are becoming more value conscious, but I’d say from our point of view it has been a continuation of the trend that we’ve seen for the last six to 12 months.”

Bunnings boss Mike Schneider is looking to grow into new categories such as pets and home cleaning. Picture: Peter Mathew

For now, sales for its retail portfolio – led by Bunnings, Kmart, Target, Officeworks and Priceline pharmacies – haven’t fallen off a cliff given the deterioration in consumer confidence, with Mr Scott saying the chase for value by shoppers would lead many to the doors of Wesfarmers’ retailers.

“Our retail businesses have built a really strong reputation for being lowest price,” he said.

“Customers have trust that when they come to our business, they don’t need to shop around, they will get the lowest price, and it’s times like this in markets like this where that really matters.

“And from our point of view, we are committed to having the lowest prices in the market and we will just continue to double down on that.”

But Wesfarmers isn’t standing still in this environment. Through its almost five-hour strategy day presented to analysts and investors it continued to flesh out its strategy of investing in its businesses to help them expand into new markets and categories.

This included Bunnings pushing more into petcare, Kmart ramping up its private label brand Anko and Officeworks expanding further into the business-to-business market and filling government tenders.

“The other thing that we’re focused on, and we emphasise today, is that there are a lot of growth opportunities that we are trying to pursue through our category expansion and the areas that we’ve talked about in terms of pets and cleaning products in Bunnings, expanding the ranges in Anko, and these are ways that households can save more money on a broader range of products.

“And then that creates growth in our businesses at a challenging time for the economy. So it’s a win-win. It’s a win for us and a win for consumers.”

Ian Bailey, group MD of Kmart, is championing its private label Anko.

Backing up this investment opportunity, Wesfarmers’ strong balance sheet gave it “optionality to deploy and reallocate capital” and to invest in existing businesses as well as new ones.

For fiscal 2024 Wesfarmers expects to net capital expenditure of $1bn to $1.2bn, and although he didn’t rule out large acquisitions it seemed that the opportunities already existing in the Wesfarmers conglomerate around digital platforms, category expansions and sourcing could deliver better returns than paying top dollar for a new business.

“Our cash flow generation is still very strong within Wesfarmers, so we’re pleased that we are generating good cash, our balance sheets are really strong, so we have a lot of flexibility and capacity. But as you know, just because we have a strong balance sheet, it doesn’t mean we’re more or less likely to do an acquisition, the acquisitions really need to stack up in their own right.

“A whole lot of things need to go right for an acquisition to add value to shareholders so we will always be discerning and opportunistic around that.”

At the start of its strategy day, Wesfarmers drew attention to its growing digital platforms such as its OnePass loyalty program that links to its retail chains, with OnePass members 2.7 times more likely to shop at a Wesfarmers retailer than non-members.

At Bunnings, which drives just under half of Wesfarmers’ annual sales and around two-thirds of its earnings, the hardware chain will continue to expand into new product ranges.

Bunnings managing director Michael Schneider said the retailer’s addressable market was now topping $110bn as it ventured into adjacent categories such as home security and technology, petcare and home cleaning products. At the Wesfarmers strategy day 11 years ago the addressable market was only valued at $42bn.

The juggernaut private label owned by Kmart Group, Anko, is continuing to win over customers and now holds the leading market share for home products and is the biggest toy brand in Australia.