The $230 million acquisition of Melbourne-based online retailer Catch is proving a nightmare for Wesfarmers management, who earlier today reported that revenues declined by 26.8 per cent, resulting in a half-year loss of $108M at their online-only business.

The latest filings include restructuring costs of $33 million relating to inventory provisions, redundancies and asset write-offs.

Revenues fell 30% from $315M, to $219M during the past six months.

“The disappointing financial performance in Catch reflected operational and execution challenges, in addition to the broader decline in online retail demand during the period,” Wesfarmers CEO Rob Scott said.

“Catch’s earnings were impacted by significantly lower margin in the in-stock business due to increased clearance activity, as well as higher fulfilment and delivery costs associated with layout and process inefficiencies during commissioning of the new Moorebank fulfilment Centre in New South Wales.

“Management changes to strengthen leadership capabilities were implemented during the half, with a new Managing Director, Brendan Sweeney, joining the business in October 2022, along with other key leadership appointments in the retail, technology and supply chain teams. Restructuring activities to reduce overhead costs were commenced in December 2022 and additional commercial controls on range and inventory management have been implemented.”

When Catch was acquired Scott, announced that Catch’s growth “can be accelerated under Wesfarmers’ ownership” and with much excitement added the business to the Kmart and Target division.

In the prior six months Catch reported losses of $44M despite almost every e-commerce company globally reported record sales.

Pete Sauerborn, a career executive who had led Amazon.com’s marketplace business quit the business mid last year.

The losses at Catch follow losses by Kogan.com who recently reported a net loss of $11.87m for the first half in fiscal 2022. It posted a 2022 full-year loss of $35.5m.on the 24 Jan 2023.

The value of both Kogan and Catch is falling with traditional retailers such as The Good Guys and JB Hi Fi picking up consumers during the past year.

The question now is whether Catch which overall is immaterial to Wesfarmers’ profit will be sold.

Analysts forecast that Catch’s return on invested capital will drag down the overall group.

The Financial Review wrote recently ‘Although it would grate, perhaps the most rational decision for CEO Rob Scott is to put this experience down to COVID-19 fever, and ask Gabby and Hezi Leibovich what they’d pay to have a third shot with Catch’.

Wesfarmers management claim that the ‘Elevated cost of doing business pressures in Australia and New Zealand are expected to persist in the second half, as general inflation together with labour market constraints impact personnel costs and costs in domestic supply chains.

As a result of actions taken during the last 12 months, the Group’s businesses are well progressed with key productivity and efficiency initiatives, and remain focused on opportunities to leverage their scale and sourcing capabilities to mitigate the impact of cost increases.

Investments in data and digital will continue through the expansion of divisional capabilities and the addition of new benefits and partners to the OnePass program.

Restructuring actions are underway in Catch to address operational and execution challenges, and to refine the value proposition for customers.