Woolworths announces closure of 30 Big W stores after slow profit improvement
Woolworths announces closure of 30 Big W stores after slow profit improvement

Woolies to close 30 Big W stores

DISCOUNT department chain Big W will have 30 stores closed from its national network over the next three years after a review into the loss-making franchise.

The Woolworths-owned brand will also close two distribution centres (DC) and will result in a $370 million hit to its full-year earnings, the conglomerate announced to the Australian share market on Monday morning.

Woolworths has not yet said which stores will be on the chopping block and is also yet to announce how drastic the loss of jobs will be.

But it did say it would aim to recycle many of the employees back into the business where possible.

A warehouse in Monarto, southeast of Adelaide, will close in the 2021 financial year, with one in Warwick, Queensland, to follow two years later.

The blow to the company's profits comprises of $270 million in lease and exit costs for closing about 16 per cent of its department store network, plus $100 million of non-cash asset impairments.

The closures impact 16 per cent of the Big W franchise, significantly less than was predicted by Macquarie Wealth Management report last month which said the brand would have to close about 60 stores to ease the pressure of the $2.9 billion in lease commitments.

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Woolworths chief executive Brad Banducci said the review was undertaken to help Big W become profitable in the longer term.

"As foreshadowed at our half-year 2019 results, 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.

"We understand the impact that the store and DC closures will have on our team and will endeavour to provide affected team members with alternative employment within the Woolworths Group where possible.

"This decision will lead to a more robust and sustainable store and DC network that better reflects the rapidly changing retail environment.

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

The Macquarie report forecasted Big W would be forced to close one third of its 183 stores at a cost of about $759 million.

It said the ultimate cost would "come down to the lease term remaining on these problematic sites and whether the landlord would accept a discount given potential for alternate use, etc."

"The market may like the removal of uncertain downside given the challenging industry outlook," it said.

Macquarie said half of Big W's stores were located in challenging regional areas. "It is unlikely these locations will enable Big W to regain the momentum required for profitability," it said.

"In a challenging retail environment, we see a reduction in store count as the most likely outcome from the review. Given the format of Big W stores, we believe it would be difficult to reduce space as Myer is doing and that outright store closure is more likely."

 

 

 

Continue the conversation on Twitter @James_P_Hall or james.hall1@news.com.au


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