Woolworths’ discount department chain Big W is expected to post a second half loss of up to $135 million and the retail giant’s chief executive is pointing to a revised, “multi-year” turnaround plan to save the troubled brand.
The Woolworths business delivered third-quarter sales results to the market yesterday. These were met with optimism from retail analysts due to the 5.1% increase in food sales for the quarter, pointing to a potential tightening in the race for dominance with Wesfarmers rival, Coles. Woolworths stock jumped to $27.71, up from $27.00 at the end of Monday’s trade, on the news.
However, one “work in progress” is Big W, which saw sales for the quarter drop 8.6%, from $828 million in the second quarter to $757 million in the third quarter. For the first half of 2017, the chain posted a loss of $27.2 million, but Woolworths chief executive Brad Banducci said in a statement on the most recent numbers that the scale of loss for the second half would be larger.
“Due to the investment we are currently undertaking as part of our revised plan, we currently expect Big W to report a loss before interest and tax of $115-135 million for H2’17,” Banducci said.
While Big W is far from the only discount department retailer feeling the heat from overseas competitors and falling sales, the Woolworths-owned brand has had a number of disruptions to its plans to shed inventory and create new store formats, including the resignation of managing director Sally McDonald in 2016.
McDonald was replaced by the former head of the Woolworths home improvement business, David Walker, who after acting in the role since November will now stay on as head of Big W for what Banducci has flagged will be a “multi-year” path back to dominance.
“We completed a review of the Big W strategic plan and customer value proposition during the quarter. While this continues to be refined, we are now in the process of implementing this plan,” the company said in a note to shareholders.
Retail experts have previously told SmartCompany that retail turnarounds related to inventory naturally take years to play out, and the discount department store space is particularly challenging because of similar product offerings. While Big W faces the challenge of competing with Kmart, the Wesfarmers-owned business currently considered the winner of the space, it’s not all smooth sailing at Wesfarmers either, with its Target operations continuing to post losses.
When asked about the turnaround plan at Target last year, chief executive Guy Russo told analysts he didn’t have a “Plan B” for turning the brand around in its quest to become a “high volume fashion retailer”.
The market isn’t infinite
Target, Kmart, Big W and Best and Less have all been the subject of strategic reviews and overhauls over the past few years, says RetailOasis strategist Pippa Kulmar, but this is a climate that the sector has never seen before.
“I wouldn’t want to be Big W or Target at the moment,” Kulmar says.
“It’s a fascinating category and it’s interesting because when you look at the Australian market, it’s actually over-serviced. Markets aren’t infinite, they’re finite — the more competitors in a market, the more diluted, and if you look at the discount department sector over the years someone has always been on top, but it’s never the same one.”
While Big W has pledged to refine its policies and start in on new product offerings, like in-house designed homewares, Kulmar believes there isn’t much room left to pivot towards new ideas in the discount department store space.
“What’s different this time is Amazon. It has an e-commerce ability that the Targets, Kmarts and Big Ws of the world don’t have. What we’re betting on this time is the discount department store will consolidate.”
What a consolidated offering would look like in practice remains to be seen, but news of yet another strategic overhaul, along with recent local brand collapses, indicate many sectors of Australian retail have not moved fast enough to counteract competitors, Kulmar says.
“I think it’s not just discount department stores — I think a lot of stores have had their day. They haven’t thought, ‘How can I pivot, what can I invest in?'”