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BREAKING NEWS: 60 Big W Stores Tipped To Be Closed, Walmart Buy Rumour Quashed

Woolworths is tipped to be planning to close 60 Big W stores as the discount department store struggles to compete, despite increased sales across their appliances and consumer electronics categories.

Rumours that Walmart had looked at buying the strugggling retailer were this week dismissed by Roger Corbett the former CEO of Woolworths and a former director of Walmart.

The move would see  the closure of up to one third of Big W stores at a cost of almost $800 million claimes Macquarie Wealth Management,

Under presssure from Amazon and online retailers the variety retailer is saddled with $2.7 billion in lease commitments aftwer they chose to operate from shopping malls.

The Australian claims that a report from Macquarie Wealth Management has run the ruler over Big W in the lead up to an expected update on the struggling Big W from Woolworths in the next few weeks.

Macquarie claims in their latest report that half of the Big W store network is located in challenging centres.

“Big W is highly exposed to regional areas … it is unlikely these locations will enable Big W to regain the momentum required for profitability. 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.”

The report argues that Big W should eventually return to profitability, therefore not justifying a complete closure of the chain, but that a more logical and cost effective strategy would be to “cut the tail” and drastically reduce the 183 stores operating across Australia.

The move if it happens is set to hurt several consumer electronic and appliance distributors who have witnessed growth at Big W during the past 6 months.

The report argues that Big W should eventually return to profitability, therefore not justifying a complete closure of the chain, but that a more logical and cost effective strategy would be to “cut the tail” and drastically reduce the 183 stores operating across Australia.

Like Dick Smith a former subsidary retail operation of Woolworth Big W has struggled for several years reporting losses despite increased revenues.

Analysts claim that the situation is only going to get worse as Amazon and Kogan expand their Marketplace operations competing up against discount variety stores such as Big W Kmart and Target. For the 2018 fiscal year, Big W posted a full-year loss of $110m, and a loss of $151m in 2017. For the first half of 2019 Big W had a loss of $8m.

“Partial closure of the most unprofitable and shorter lease stores is more likely,’’ Macquarie said in a note to clients this morning.

“Given significant closure costs for the portfolio, a more likely scenario is Woolworths to close up to one-third of its stores (60 stores), in our view. This cost could be around $759m. 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.

 

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