Think about Restructuring to save your business: Woolworths example
Woolworths is announcing a restructure to face Aldi Competition. It’s time for this giant to become more competitive.
Woolworths is cutting 500 jobs and closing 30 stores. The group is also looking to sell the struggling supermarket chain, EziBuy. The moves to make the supermarket chain more efficient will mean restructuring costs of $959 million.
Woolworths is being squeezed by discount competitors including Aldi (with 11% of the market). It has also been running behind its main competitor Coles in terms of sales growth. Coles, in its latest quarterly report, posted sales growth of 5.9% while Woolworths has been flat. In February, Woolworths posted a loss of $972.7 million for the first half of the financial year, its first for more than 20 years, driven by a massive $1.9 billion write down in the value of the troubled Masters hardware business. The main business also was weaker with sales dropping 1.4% to $32 billion. And Australian food and liquor sales were flat at $22.34 billion, up just 0.7% over the six months.
CEO Brad Banducci says the turnaround measures are showing real momentum.
“Five months ago I said we would work hard to get customers to put us first, to improve our culture and rebuild momentum,” he says. “Today’s announcement demonstrates both the progress we are making and our absolute commitment to act quickly to rebuild the business by doing the right thing by our customers, shareholders, team and suppliers.” He says 2016 year EBIT (earnings before interest and taxes) from continuing operations before significant items will be between $2.55 billion and $2,57 billion.
The latest restructuring costs include redundancies, impairment of IT and related assets, impairment of supply chain assets and consultancy and other third party costs.
Redundancy costs of $35 million reflect a reduction in 500 roles across the support office and supply chain network.
The retailer is changing the way it rewards staff. Sales per square metre and Return On Funds Employed have been introduced as key long-term performance indicators.
Woolworths also intends to close 30 stores before the end of the lease-term, costing about $196 million in 2016.
“We have carried out a comprehensive store network and property portfolio review across the group resulting in impairments and other charges of $344 million,” Banducci says.
“These costs primarily relate to the planned store closures of under performing and non-strategic stores as well as the deferral and exit of non-core property development assets in line with the revised property network plan.”
Woolworths has also decided to slow net new supermarket openings from 90 planned over the next three years to about 45.
There have been costs of $43 million at BIG W, including getting rid of some products, redundancies and IT costs.
The EziBuy business has been fully separated from the BIG W business. “An impairment charge of $309 million has been made against EziBuy. “We are currently exploring options for the sale of the business,” Banducci says. BIG W is expected to report a 2016 full year loss of $12 million to $7 million and EziBuy $13 million to $18 million before significant items.
Source: Business Insider