Wesfarmers is gutting and rebuilding recently-acquired online retailer Catch Group, in hopes their $230 million acquisition will soon stop bleeding losses.
Since acquiring the Catch Group in June 2019, it has been a thorn in Wesfarmers’ side.
Revenues declined by 26.8 per cent for the last half of calendar year 2022, resulting in a half-year loss of $108 million. This included restructuring costs of $33 million relating to inventory provisions, redundancies, and asset write-offs.
Morgan Stanley analysts expect Catch to drag the combined OneDigital play down to a $250 million loss this financial year, with the cleanup becoming more pronounced during the current six-month period.
Since the start of the year, Wesfarmers have taken a knife to Catch, with a new Managing Director, and new heads of Retail, Technology, and Supply Chain.
37 per cent of employees have been axed since February, and the company notes in today’s investor notes that it has been clearing “unprofitable and unhealthy stock” – with a 25 per cent reduction in SKU count compared with the start of FY23.
Its ‘pick and pack’ facility at Moorebank has reduced cost per unit by 25 per cent in March 2023, compared to an average month during the last half of 2022, and it has reined in its marketing spend.
Wesfarmers says it aims to further reduce stock to create “a more profitable targeted 1P proposition”, while launching an internal program to optimise its fulfilment centres, “furthering lowering costs and increasing delivery speed”, as well as continuing to fulfil deliveries for Kmart.
OneDigital managing director Nicole Sheffield offered a much rosier outlook than given in February, when Rob Scott called Catch’s first half FY23 performance “unacceptable”.
Sheffield said this morning that Catch had reduced losses every month since October last year.
“We have seen improved customer NPS (net promoter scores) since the start of the financial year, we’ve exited approximately 25 per cent of our 1P (first party) range as we are focused on providing a more targeted, profitable offer,” Sheffield told investors.
Scott noted the “surplus inventory and an unsustainable cost base” brought on after Catch rode the pandemic spending wave and wound up with too much stock.
“We clearly over-invested,” Scott told analysts, after reporting $108 million in first-half losses for Catch alone.
“It’s not good enough, it’s unacceptable, we’re not satisfied with this at all. You can expect that we are taking very serious action to improve the financial performance,” he said.
“It’s going to be a disappointing year for Catch, but it will need to improve.
“Iit’ll need to improve materially in the years ahead, or we just simply won’t keep investing at the current level.”
