he took over from O’Brien. Wesfarmers is arguably not at the same low point as Woolworths was back in early 2016, bleeding from losses at Masters Home Improvement and the Big W discount department store and struggling for growth in the core supermarkets business. Nevertheless, Scott takes over at Wesfarmers at a pivotal point with the retailer’s Bunnings business in the United Kingdom and its Target discount chain sustaining heavy losses and its supermarket business recording lower growth rates on sales than the rival Woolworths chain. On the plus side, Scott has the Kmart chain firing on all cylinders, Bunnings’ Australian and New Zealand business thriving and a handy little earner in the Officeworks chain. Goyder, the outgoing Wesfarmers CEO, has certainly not left the company in the challenging situation that O’Brien did at Woolworths but he has left some unfinished business that will test Scott and his management team. Masters Home Improvement proved to be O’Brien’s ‘Waterloo’ but Woolworths’ pain extended into its other retail businesses as well, which O’Brien struggled with during his five-year stint as CEO. Since his appointment in 2016, Banducci has cleared the decks at Woolworths, selling off the company’s network of service stations to BP and Home Timber and Hardware and Thrifty Link to Metcash as well as the Ezibuy business. Banducci has extricated Woolworths from the Masters Home Improvement, both in terms of the closure of stores and asset divestment, as well as the termination of the joint venture agreement with US retailer, Lowes. Getting back to core business in supermarkets and liquor, Banducci has posted sales growth of 4.7 per cent in food and 3.8 per cent in liquor for the first quarter of the current financial year. Investment in store upgrades and price reductions have struck a chord with customers and contributed to a turnaround in Woolworths fortunes notwithstanding the gains will impact on bottom line profits in the short term. Banducci can even claim credit for a 2.5 per cent lift in sales at Big W, the first positive sales performance for some years. One quarter does not a financial year make, but the Big W sales gain for the 14 weeks to 1 October is a boost for the struggling discount chain. In contrast to Woolworths first quarter performance, Wesfarmers food and liquor division achieved a modest 1.5 per cent increase in sales, while its fuel and convenience store business suffered a 9.5 per cent fall in revenues. Wesfarmers’ struggling Target chain shed a further 6.4 per cent in sales for the quarter albeit business is currently undergoing a reset of product, price and range under under a new turnaround strategy crafted by Guy Russo. Russo achieved a remarkable turnaround in the fortunes of Target’s sibling discount department store, Kmart, but the repositioning and rebuilding took more than five years, arguably in a somewhat less competitive marketplace. Posting a further nine per cent increase in sales for the first quarter, Kmart has certainly not lost any momentum since Russo was charged with the Target rescue. Officeworks, which Wesfarmers had measured up for a trade sale or listing on the Australian Stock Exchange, may tease Scott in terms of revisiting the divestment plan, but is certainly not disappointing in respect of its trading performance, growing first quarter sales by 7.8 per cent. Bunnings UK: On the road to success or failure? The core supermarkets and liquor division and the Bunnings UK business loom as the major challenges for Scott, although like Banducci at Woolworths, he may have to consider exiting the volatile fuel and convenience category and the closure or sale of Target. Bunnings Australian and New Zealand stores lifted sales by a remarkable 11.5 per cent in the first quarter of the 2018 financial year but revenues in the UK business fell by 17.5 per cent. After the Woolworths Masters Home Improvement debacle, the Bunnings UK result is creating a lot of nervousness amongst retail analysts and investors, especially with Scott telling shareholders that losses in FY18 will exceed the $89 million loss incurred in the full FY17. On the eve of Wesfarmers AGM, the highly regarded Goyder said one of his regrets in stepping down as CEO after 12 years in the job was that he would see Bunnings UK find its feet and contribute to profitability and growth for the company’s retail portfolio. Goyder has no doubts that Wesfarmers made the correct decision in acquiring the struggling Homebase hardware chain in the UK in 2016 for an outlay of $705 million. Homebase was the number two player in the category, but had been losing market share and was closing stores before Wesfarmers struck a deal to buy the chain and to convert the stores to the Bunnings brand and format under a $1 billion capital injection. Eight Homebase stores have been converted to the Bunnings format and Wesfarmers claims the early trading performance of those pilot stores has been encouraging with “solid sales uplifts”. Another 15 to 20 of the 244 remaining Homebase stores will be converted to the Bunnings format by the end of this year, provided regulatory approvals can be obtained for the refurbishments. When it acquired Homebase in early 2016, Wesfarmers forecast a three- to five-year period to put the chain on a sustainable basis and Scott told shareholders at the company’s AGM it would probably be mid-2018 before the Bunnings concept was fully adapted for the UK market. Scott said the pilot stores would provide information on the format and different geographies, seasonality and social economic factors that would underpin the conversion program for the Homebase store network in the UK and Ireland. Wesfarmers argues that, despite the trading losses, the Bunnings UK business is still in the “early days” of its development and trading has been adversely affected in the first quarter of FY18 by significant clearance of discontinued ranges and restructuring. An update from Coles The same store sales growth rate at Coles is currently running at the lowest rate in eight years, based on the modest 1.5 per cent gain in the first quarter and margins are under pressure as the chain defends its low price promises. Wesfarmers maintains it still has opportunities for growth and can recoup some of its investment in price and customer service from reduced costs in doing business. Coles claims it is continuing to achieve transaction growth, unit growth and more plaudits from customers in supermarkets and is improving its liquor division performance. Coles food and liquor business is not in significant difficulty, but is certainly facing a challenge to defend market share along with sales and earnings growth against the revitalised Woolworths and other competitors such as Aldi, Costco and, potentially, future rivals in Amazon and Kaufland. Scott has probably not been given a poisoned chalice, but the task ahead is unlikely to be all wine and roses and may well require the resolve that Banducci has demonstrated in addressing the problems at Target, as well as in the fuel and convenience business and Bunnings UK. Scott has worked alongside Goyder in the lead up to the Wesfarmers AGM and his formal appointment as CEO. Scott, a former Olympian, started with Wesfarmers in 1993 before embarking on a career in investment banking with roles in corporate finance and mergers and acquisitions in Australia and Asia. He rejoined Wesfarmers in 2004 and was appointed managing director of the company’s insurance division before taking up the position of finance director at Coles in February 2013. He was appointed managing director financial services in October 2014 and a year later, became managing director of Wesfarmers industrials division. Scott has acknowledged there are challenges ahead but says there are also opportunities. He also supports the conglomerate structure of the Wesfarmers business and claims its diversity is a strength, rejecting the view of some analysts that the company should focus on retail and divest its other divisions.