SMH: Woolworths announces first Big W store closures in cost-cutting plan

The original article from SMH.com is available here.

By Dominic Powell

Woolworths has announced the first three Big W stores that will close as part of the company's plan to contain losses from the languishing retail chain.

Big W stores in Chullora, Auburn and Fairfield will shut their doors by January 2020 in a move that managing director David Walker said was not taken lightly.

"We would like to acknowledge the support of the communities of Chullora, Auburn and Fairfield and the hard work and commitment of our store team members,” Mr Walker said.

“Over the next six months, we will support our team and explore redeployment opportunities with team members who choose to continue their career at BIG W or with other Woolworths Group brands in the months ahead.

“Supporting our team remains our priority and we are committed to doing the right thing by them.”

The three stores are the first of the 30 Big W locations Woolworths plans to shutter over the next three years. The company has already closed distribution centres in Warwick, Queensland, and Monarto in South Australia.

Over the next six months, we will support our team and explore redeployment opportunities with team members.

David Walker

In April, Woolworths chief executive officer Brad Banducci announced the planned closures, which the company predicts will cost a total of $370 million.

"The decision will lead to a more robust and sustainable store and DC (distribution centre) network that better reflects the rapidly changing retail environment," Mr Banducci said.

"It will accelerate our turnaround plan through a more profitable store network, simplifying current business processes, improving stock flow and lowering inventory."

The company said it would continue to work with landlords over the coming months to determine the other stores it plans to close.

Analysts have previously suggested that Woolworths' target of 30 stores was too modest, and instead the company should close at least 60 of Big W's 187 stores.

Steve Kulmar, retail analyst and strategist at Retail Oasis agreed, pointing to the sluggish growth of department stores such as Big W and Target over the past decade.

"Once you start thinking about commoditised apparel, home goods, basics, the sorts of things you’d usually purchase from Big W and Kmart, you can see how under pressure they are from online players like Amazon and eBay," he says.

"So with a category which hasn’t grown in a number of years, and now facing increased competition, shutting just 30 stores isn’t going to be enough."

However, Mr Kulmar also believes the company will look to consolidate Big W’s footprint and instead have fewer, larger stores which integrate better with Woolworth’s online offering.

"The three closing in Sydney are all quite close to each other, so Woolworths could consolidate and grow a store close to there into a larger one with click and collect sites," Mr Kulmar says.

Carrying out this process while closing a total of 50-60 stores could help Big W find a road to profitability, Mr Kulmar predicts, with the company’s current losses for the 2019 financial year predicted to be between $80-100 million.

Big W reported a loss of $110 million in the 2018 financial year, and a loss of $8 million for the first half of fiscal 2019.

I think Woolworths has no intention of owning Big W in three to five years time.

Woolworths recently announced its intention to spin off its drinks, hospitality and gaming interests into a separate company by 2020.

Mr Kulmar said the retailer could be keen to repeat the tactic with Big W.

"I think Woolworths has no intention of owning Big W in three to five years time," he says.

Woolworths shares were down 0.55 per cent after the announcement, trading at $34.10.