Home > Latest News > Speculation, Target Up For Sale & Officeworks Moving Into Education Market

Speculation, Target Up For Sale & Officeworks Moving Into Education Market

Wesfarmers has today briefed the market at a fund’s managers event with speculation mounting that the group is looking to sell the troublesome Target retail chain that has been taking over K Mart store locations while expanding Officeworks into new education markets via an acquisition.

Wesfarmers has warned that year-on-year growth for some of its key retail businesses has slowed in 2021, with some of its chains reporting negative growth for particular months.

Wesfarmers CEO Rob Scott said “Year-on-year sales growth had generally moderated and been negative in some months for some businesses, due to elevated activity in the prior year,” the owner of Bunnings, Kmart, Target, Officeworks and Catch Group said in a high level trading update released at its annual strategy day on Thursday.The conglomerate also warned of of the threat posed by “punitive taxes” during an uncertain period of recovery from the pandemic.

Mr Scott also said the company was continuing to see pricing pressures due to increased shipping and freight costs and some higher prices for raw materials such as timber and cotton, though noted these were short-term impacts.

The retail group claims that they have ontinued to book strong sales growth over the past 24 months.

It said this two-year trajectory reflected the retail businesses’ ability to provide safe and trusted environments while delivering greater value, quality and convenience for customers.

Wesfarmers expected fiscal 2021 net capital expenditure of $650m to $700m, subject to net property investment and including the conversion of Target stores to Kmart stores.

Meanwhile the Bunnings hardware group is set to transition to 100 per cent renewable electricity by 2025 and it has committed to net zero scope 1 and 2 emissions by 2030. It said solar power was currently installed at 74 sites, and it planned to expand that to over 100 sites by June 2022

Wesfarmers said Target is now a smaller and simpler business, with a single large format network of 142 stores and a rationalised supply chain.

A priority for fiscal 2022 would be to maintain momentum and achieve consistent and sustainable profitability, accelerate online growth through new customer acquisition, improved app and website experience, and improved fulfilment.

Officeworks reported that the current accessible market for its retail chain was $28 billion, of which it has a 10 per cent stake, with a potential accessible market of $56 billion.

Sarah Hunter the CEO of the Wesfarmers owned Officeworks has been exploring an expansion into the education market off the back of record growth during COVID-19 lockdowns when earnings before tax soared 22%. Back in 2017 Officeworks was up for sale with the business pulled from the market because of the pending launch of Amazon and the Amazon Prime business.

During the past 24 months the business has rationalised and expanded their dealings with CE brands with several brands claiming that they are getting “excellent” sell through at the big retailer and that they “prefer” to deal with the Wesfarmers owned business because there is less demands for marketing dollars or instore merchandisers.

Wesfarmers archrival Woolworths has also been looking for a buyer of their Big W discount stores which like Target have witnessed growth during the COVID–19 lock downs.

The Wesfarmers Ltd share price reached an all-time record high of $56.40 in February and is now trading at $56.28.

One target for Officeworks is believed to be Modern Star who claim to be Australia and New Zealand’s number one partner and supplier of educational resources to early childhood services, primary schools and before and after school care programs.

According to analysts the problem for the group is their 289 store Target operation which despite a 13% lift in sales for the six months to December 2020.

The overall Kmart Group had earnings lift of 44.3 per cent to $502 million.

One big problem is that consumers are now buying more online after getting use to online trading during pandemic lockdowns with Catch the online business acquired by Wesfarmers delivering record online growth.

Currently Target is benefiting from a booming housing market, fuelled by low interest rates.

So far, the plan for Wesfarmers, which counts top Kohlberg Kravis Roberts operative Ed Bostock within its executive ranks, has been to convert Target stores to Kmart stores in good locations.

The Australian reported recently that Wesfarmers has been focused on simplifying the Target business, prioritising online growth, and improving the product offer, with the business expected to be profitable for the full financial year before one-off costs.

There were 85 stores targeted for conversion to Kmart stores this financial year and 89 next financial year.

In a research note out this week, Citi analysts said they believed the focus for the investor day would be on the sales performance over the first five months of the second half of the 2021 financial year and whether Bunnings would embark on further bolt-on acquisitions to build its capacity beyond the “Do It Yourself” market. This follows the acquisitions of Adelaide Tools and Beaumont Tiles.


You may also like
Jaycar Hunts For New Owner
Next Fortnight “Critical” For Aussie Retail
Kmart Group’s Half-Year Earnings Plummet
Is Australia Facing Inflation Problems Similar To US?
Call For MWC To Be Cancelled As Toy Fair Gets The Chop Due To Covid Concerns