Wesfarmers is believed to be considering the floating of both their K Mart and Officeworks operations with one major investor having already expressed an interest in K Mart.
The move if successful would see the WA Company concentrate on growing their Target business.
Earlier this year the Company who also own Coles and Bunnings placed their Officeworks business on the market with expectations of a trade sale, not happy with the expressions of interests submitted for the business Wesfarmers than moved to seek new adviser for a float of its $1.5 billion stationery business which they believe is worth a multiple of between 13X and 16X of EBITDA.
Yesterday’s confirmation that Amazon is entering the Australian market could impact the sale price of both Officeworks and K Mart, according to several buyers attending the Hong Kong Trade Fair this week.
Once one of America’s leading discount retailers, Kmart raked in $37 billion in sales in the USA in its 2000 fiscal year. Last year Kmart registered only $12.1 billion in sales.
That’s a dramatic 67% sales plunge in a little more than a decade. In the USA Kmart had 2,165 stores in 2000. Now it has only 979.
During the same period, Target’s sales nearly doubled to $72.6 billion.
The transformation of Target can only be achieved at the expense of Kmart, according to broker Credit Suisse, and the sale of Kmart at its peak would give Wesfarmers the “flexibility” to adopt some of Kmart’s pricing strategies.
“The profit history of Target, Kmart and Big W all illustrate periods of significant out-performance and underperformance,” analyst Grant Saligari told Fairfax Media recently.
“Largely, they have been playing a zero-sum game.”
“A solution to this apparent dilemma for Wesfarmers could be to sell Kmart and, arguably at peak valuation, and then set about trying to fix Target,” Mr Saligari said.
