In the Woolworths Group market update and half year results report this week, the company announced it had identified approximately 30 BIG W stores will close over the next few years. This announcement came following the conclusion of the BIG W network review. In addition, two distribution centres (DCs) will close at the end of their leases.
The cost of exiting these sites will result in a P&L charge of approximately $270 million mainly related to lease and other store exit costs. The review also identified approximately $100 million of non-cash asset impairments reflecting a more conservative level of margin recovery expected from BIG W, taking account of both current trading and the outlook for the broader sector, including the continued customer shift to online. Together, the one-off pre-tax charge of approximately $370 million is currently expected to be recorded as a significant item in the F19 result. The cash cost is expected to be approximately $250 million, with the majority of the cash outflow from store exits expected in F21 and F22.
Brad Banducci, Woolworths Group CEO said: “As foreshadowed at our half year 2019 results, while the recovery in trading for BIG W is encouraging and there remains further opportunity for improvement, the speed of conversion to earnings improvement is taking longer than planned. We understand the impact that the store and DC closures will have on our team and will endeavour to provide affected team members with alternative employment options within the Woolworths Group where possible.”
“This decision will lead to a more robust and sustainable store and DC network that better reflects the rapidly changing retail environment. It will accelerate our turnaround plan through a more profitable store network, simplifying current business processes, improving stock flow and lowering inventory,” he said.
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. Potential store closures represent approximately 16% of the current store network with a remaining average lease tenure of approximately 10 years. To gain cost efficiencies and improve stock availability, BIG W’s supply chain will move closer to stores. The two impacted DCs (Monarto, SA and Warwick, QLD) will therefore be closed in F21 and F23 respectively.
The group have not released the locations of the store closures due to ongoing discussions with landlords however due to many media reports reporting they will be regional based the group released this statement in a response to consumer concern “At this stage, we are unable to confirm which stores will close until e reach an agreement with the landlord. We have reviewed stores across Australia and no regional bias, despite recent media speculation.”
However, there will be many landlords affected with Big W represented strongly in the Stockland, Vicinity, Scentre Group, AMP Capital and Charter Hall portfolios.
