Retailer Woolworths has announced it will close 17 supermarkets that are losing money and has halved the number of new stores it plans to open as it focuses on renewing and increasing the profitability of its existing 900 plus stores across the country.
Woolworths has been battling storms on a range of fronts, with its significant investments in the hardware chain Masters and digital retailer EziBuy being written down and supermarket surveys documenting continued loss of once dominant market share to rivals Coles and ALDI.
The company has appointed a new chairman Gordon Cairns and a new CEO Brad Banducci in recent months to steady the ship.
They have now reined in the former management’s previous growth strategy in favour of closing unprofitable supermarkets, halving the number of new supermarkets it plans to open over the next three years from 90 back to 45, and spending the savings on improving its existing stores and trying to make them more profitable.
In addition to the 17 Australian stores it plans close, it has identified another 15 underperforming stores it cannot yet close due to existing lease arrangements, but which it says are likely to close when those leases expire.
The company said the stores that would close were either “loss-making or in the bottom quartile” of sales per square metre.
The locations of the stores to close have not been publicly announced.
Closing the stores will cost the retailer $344 million, it says.
About 500 jobs will be cut, while 1000 people will be moved out of group offices and directly into stores to support store staff and customers, Mr Banducci said in a statement issued yesterday.
“Today’s announcement demonstrates both the progress we are making and our absolute commitment to act quickly to rebuild the business by doing the right thing by our customers, shareholders, team and suppliers,” he said.
He said all of the actions announced yesterday, including the full write down of its $309 million investment in NZ-based online retailer EziBuy, will cost the company $959 million in its 2016 results.
“While we have had to make some tough decisions and this has ramifications for many of our team, we are confident we are putting in place solid foundations for the future and early results give us confidence we are on the right track,” Mr Banducci said.
“This will be a three to five year journey and we are determined to drive sustainable improvements in sales per square metre and Return on Funds Employed to deliver value for shareholders.”
82 store renewals are planned for FY’17.
“While early, the trading performance in our six trial renewal stores to date is very encouraging,” Mr Banducci said.
Despite its recent woes the overall company is still profitable.
Woolworths still has the most stores of any supermarket chain, with 961 Australian currently open, serving 18 million customers per week.
Coles has a network of 776 supermarkets in Australia, according to parent company Wesfarmer’s 2015 annual report.
Meanwhile the third placed competitor, German owned ALDI, is growing fast.
According to figures quoted by news.com, Aldi has opened 423 stores in Australia in the past 15 years, and plans to open another 60 stores this year.
At its current rate of expansion, there are predictions Aldi could become the biggest supermarket in Australia within 15 to 20 years.
The same article said ALDI’s model was succeeding for a range of reasons: each store employs very few staff but pays them well, it keeps customers interested by having a weird array of special items on sale each week, it sells only 1000 different product items compared to the 10,000-20,000 stocked by Coles or Woolies, and it spurns fancy shelving in favour of having items stacked on the floor in the boxes they were shipped in, to help make things cheap.