Woolworths-owned discount department store Big W will close 30 stores and two distribution centres over the next three years as the loss-making chain attempts to restructure its cost base.
In committing to the closures, Big W becomes the latest department store to downsize its network in recent years, amid ongoing market disruption and rising commercial rents.
Competitor Target announced last year it would close 20% of its selling space as part of its own turnaround efforts, while higher up the market, Myer has also closed stores in recent years.
In comparison, Big W’s closures will reduce its network size by 16%, costing about $270 million in lease and other exit costs.
The company did not reveal which stores will close or any specific details about how the timeline will play out.
Woolworths Group chief executive Brad Banducci said the downsizing, foreshadowed weeks ago, will deliver a more “robust and sustainable” business.
“While the recovery in trading for BIG W is encouraging and there remains further opportunity for improvement, the speed of conversion to earnings improvement is taking longer than planned,” he said in a statement released via the ASX.
“The decision will lead to a more robust and sustainable store and DC network that better reflects the rapidly changing retail enviroment.
“It will accelerate our turnaround plan through a more profitable store network, simplifying current business processes, improving stock flow and lowering inventory.”
Big W is expected to report a before interest and tax loss of $80-100 million for the financial year 2019, a forecast reduction on the $110 million loss in financial year 2018.
Comparable sales growth clocked in at about 6% for the most recent quarter (Q3), driven by stronger transaction growth.
Big W will also shutter its Montarto, South Australia and Warwick, Queensland distribution centres in coming years to reflect efforts to move its supply chain closer to remaining stores.
The closures have been considered inevitable for some time and have been an option on the table for Big W for over a year as a turnaround scheme for the business progresses.
Outstanding lease commitments have been a thorn in its side, however, as any store closures come alongside hefty buyout commitments with landlords.
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The closures will free up thousands of square metres of retail space in shopping centres across the country and will force centre owners to lock in new large format tenants or break up space for smaller retailers.
The discount department stores sector is facing the same challenges the traditional department sector faced a decade or so ago.
Queensland University of Technology retail expert Gary Mortimer says the “right sizing” reflects the modern retail demand brands such as Big W have come to reflect.
“Today there is simply more choice in the market for consumers and ‘category killers’ are doing a much better job on range, price and service,” he tells SmartCompany
“Stores like Kmart and Big W once had large hardware and automotive departments. You could get paint mixed and buy timber. However today, Bunnings does it better.
“They had substantial ‘sight and sound’ departments, DVDs, CDs, televisions and sound systems. Today, JB Hi-Fi and Harvey Norman do it better,” he says.
“Re-badging and right-sizing appear to be the norm for the department store sector, whether it’s the full-line traditional department Stores or the Discount sector.”
Retail expert Pippa Kulmar of Retail Oasis says department store consolidation continues to reflect stiff competition in the category.
“We are pretty over-catered per capita when it comes to discount department stores,” she tells SmartCompany.
“The category dynamics are changing, we have more competition and a different consumer who is emerging,” Kulmar says.