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Steinhoff International eyes Big W purchase

Big W_Craigieburn-CentralSouth African retail giant, Steinhoff International, is said to be in talks with Woolworths about acquiring the Big W discount department store chain as well as select Masters Home Improvement sites.

Inside Retail understands that Steinhoff International CEO, Markus Jooste, has been in Australia holding talks with Woolworths about the package purchase.

Speculation has been mounting that Woolworths may either sell the struggling Big W or seek a joint venture partner to invest in the DDS chain to help return it to competitiveness with sector leader, Wesfarmers’ Kmart. Doing so would ease some pressure on CEO, Brad Banducci, and his executive team, allowing them to focus on executing the strategy for Woolworths’ supermarket business.

Sean Sands, managing director of ACRS at Monash Business School, said Big W represented a large footprint and plenty of opportunity for further development. Speculating on what Steinhoff may implement if it acquired Big W, Sands downplayed the potential of a quick rebrand.

“They may consider developing a hub and spoke store network feeding off larger distribution stores and tailoring smaller store formats to local communities in terms of range/offer,” he said.

“Endless aisle tech could be included to allow smaller format stores to maximise instore or home delivery from the larger store base. The store network is large with a number of good retail locations. Steinhoff obviously see opportunity in the local market; I am excited to see what they do and how they compete.”

Gayle Dickerson, national retail leader, Grant Thornton, added that any turnaround strategy implemented at Big W will need to include store refurbishment, consolidation of underperforming stores and a re-focus on the chain’s core brand offering, which has lost traction with customers.

“There is a great opportunity to extract value if they can deliver a turnaround,” Dickerson said. “Big W has always been seen as a low-end budget offering. New owners will need to refine their product offering to create a greater connection with customers.

“Steinhoff may be able to bring new product ranges that offer new overseas trends, good quality at value to Big W customers. Retailers compete in a global market now and Australian retailers need to be able to compete with quality brands and value for money.”

Sands sidestepped suggestions that Big W may be better off in other hands, given Woolworths is focusing substantial efforts on the challenges facing its supermarket business.

“Whoever operates it is operating in a competitive space,” he said of Big W. “And coming up against the likes of Kmart in the DDS space is no small challenge. Kmart have nailed price, fashion and range, so Big W has a big challenge in anyone’s hands.”

Nonetheless, Peter Thornely, retail corporate finance partner at Grant Thornton, suggested shedding Big W may bode well for Woolworths’ supermarket business.

“Woolworths focusing on its core offering – its supermarket business – may see it being best placed as supermarket competition continues to heat up with the rampant Aldi dominating. Alibaba’s entrance is also a potential threat.”

MastersInside Retail understands that the Masters Home Improvement component of the deal would see  Steinhoff International acquire select Masters sites for the rollout of a large format electrical/white goods/homewares chain. This would put some weight behind recent speculation that Steinhoff intends to proceed with a full-scale rollout of its Poco chain.

The Big W-Masters play would see Steinhoff International further establish itself as a major force in Australian retail, making it a legitimate rival to Wesfarmers. Steinhoff, which is understood to have recently been in discussions with the Muir family about acquiring The Good Guys, is already one of Australia’s top retailers in revenue terms, with annual sales of around $1.5 billion after acquiring Pepkor Group in November 2014.

The Pepkor acquisition added the Harris Scarfe and Best & Less retail chains to its existing local investments, Freedom Furniture, Snooze and Poco. Pepkor South East Asia also has Store & Order and Mozi in Australia, as well as Postie in New Zealand. Last year, Steinhoff also formed a franchise agreement with British retailer, Debenhams, to launch the department store brand in the Australian market.

However, Australasia’s 477-store footprint is just a fraction of Steinhoff International’s 6500 stores across 30 countries, selling furniture, homewares, electronics, clothing and footwear. The Stellenbosch-headquartered Steinhoff is considered to be one of the largest retail corporations in the world and has annual sales of close to $A17 billion, generated from 40 retail brands and a manufacturing and logistics base.Poco 2

Steinhoff International Holdings listed on the Johannesburg Stock Exchange in 1998, but in December last year it moved its main listing to the Frankfurt Stock Exchange in a move Jooste said was aimed at raising the international profile of the group.

Both Woolworths and Steinhoff declined to comment on the potential sale of Big W and Masters sites.

To read more analysis on Steinhoff International potentially acquiring Big W and select Masters Home Improvement sites, and how that would further cement Steinhoff as a major player in Australian retail, keep an eye out for next week’s issue of Inside Retail Weekly.

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