It’s been called everything from a basket case to a boil. Whatever Big W is, it’s Woolworths’ challenge for some time yet.
The discount department store chain is undertaking another strategic plan under another new CEO, this time David Walker.
Woolworths reports strong sales growth
Woolworths announces a strong growth in supermarket sales, with like-for-like sales rising 4.5 per cent in the March quarter.
On Tuesday it forecast an even deeper loss for this half, of between $115 and $135 million, from an earlier predicted loss of $88 million.
At $757 million in sales for the third quarter, Big W and its 186 stores are a small part of the Woolworths empire, which increased sales by 4.4 per cent to $13.8 billion.
But Bank of America Merrill Lynch’s David Errington reckoned Big W cast a shadow of the company’s broader good news story – supermarket sales growing faster than rival Coles – and described it as “like a boil”.
“You can either lance it or you can withstand the pain,” the veteran analyst told Woolworths boss Brad Banducci.
Another Woolworths watcher, former Perpetual senior portfolio manager Peter Morgan, was similarly forthright, describing it as a “basket case”.
Mr Banducci responded that he was “acutely aware that there’s quite a few cracks at this one”.
Some are bearish about the prospects for discount department stores. Photo: Rick Stevens
He told analysts this time it was different because Woolworths had engaged its whole team to develop a plan, appointed people it thought best to enact that plan and had been “very clear on what to do for the core Big W customer”.
“We’ve also, to the best we can, tried to take the learnings we’ve found in Australian Food [supermarkets] in terms of what are the layers and sequences you need to go through,” he said.
David Errington believes Big W cast a shadow of the company’s broader good news story. Photo: Nic Walker
“The problem I find in mass market retailing – whether it’s food or discount department stores – is there’s a whole tonne of stuff to be done and sequence is actually more important than what you need to do.”
Mr Banducci said there was “still a lot resonance with the Big W brand,” with close to two million customers each week and 21,000 employees.
You can either lance it or you can withstand the pain.
He said Big W needed to grow sales before any decision could be made about its future and declined to provide a timeframe on how much longer Woolworths would wait for an improvement.
Questioned whether now was as bad as it got for Big W, Mr Banducci told reporters he would “never say never” but he “certainly hope[d] that that’s the case.”
Brad Banducci said there was ‘still a lot resonance with the Big W brand’. Photo: Louie Douvis
But some are bearish about the prospects for discount department stores, as international competitors circle, apparel is fiercely competitive, and there remains a huge time lag between products being ordered and sold.
According to fund manager Bruce Smith, Big W “remains highly challenged with earnings guidance unexpectedly given and more warnings of it being a multi-year turnaround.
“When you combine that with the poor result from Target announced last week you really do have to question the viability of the format, and this is before the disrupters arrive.”
Kaufland, the German hypermarket owned by the same company that owns discount supermarket chain Lidl, is tipped to challenge discount department stores when it sets up here.