Troubled Big W to shut stores
WOOLWORTHS has delivered a jolt to Australia's retail industry, announcing it will close scores of Big W stores as the chain bleeds cash.
About 30 Big W stores will close over the next three years.
The retailing heavyweight is yet to announce which stores will close or how many jobs will be affected.
There are 183 stores across Australia at the moment, so about one in every six is to close.
Industry experts have previously speculated Big W may close some stores in struggling regional areas.
But the company said this morning that regional stores would not specifically be targeted in the closure program.
Woolworths' decision to shrink the Big W store network comes amid a painful period in the Australian discount department store sector.
While Kmart has performed well for rival retailing heavyweight Wesfarmers, sister chain Target has struggled for years.
The Big W chain generates about $3.5 billion in sales a year but the company has been unable to translate that into a bottom-line profit.
Analysts at investment bank Macquarie last month said Woolworths could soon be forced to close Big W stores in an effort to return the chain to profitability.
Big W has lost money the past two financial years, reporting a loss before interest and tax of $110 million last year and $151 million the previous year.
Woolworths said today it expected another loss this financial year, of $80 million to $100 million.
Chief executive Brad Banducci said that the timing of store closures would depend on negotiations with landlords.
"We believe we have momentum in Big W … we are still challenged to convert this momentum into profitability," he said.
"The goal of the announcement today is to build a stronger business for the future."
Woolworths would work to redeploy as many impacted Big W staff into other roles as possible, Mr Banducci said.
He also said that the decision to close 16 per cent of the Big W network followed a review of the company's trading outlook for the next two years.
That review took into account future trends in online shopping and foot traffic to shopping centres, he said.
"What we have done in this review is look out over the next two years and look at what kind of network we need to be successful," Mr Banducci.
"The stores on the list tend to be on the lower side of our sales per square metre and on the higher side of our rent per square metre."
Woolworths also announced today that it would close two Big W distribution centres.
"Details of possible store closures will not be released due to ongoing discussions with landlords and in the interim, all stores and DCs (distribution centres) will continue to trade as normal," the group said in a statement.
The closures of the stores and the distribution centres will see the retailing heavyweight take a $370 million hit in its full-year results.
The hit will be composed of $270 million in lease and exit costs as it pulls down the shutters on the stores and the distribution centres, plus $100 million in impairments.
"The review was undertaken to help Big W maintain a strong and profitable store network where all stores can make a strong contribution to Big W's profit over the longer term," Woolworths said in a statement.
The distribution centres that will close are in Monarto, east of Adelaide, and Warwick, south west of Brisbane. The South Australian centre will close the financial year after next, and the Queensland centre two years later.
Woolworths has also confirmed a $1.7 billion share buyback following the sale of its fuel operations.
Shares in Woolworths were up 2.2 per cent, or 66c, at $31.06 early this afternoon.