also a continuing disinclination by consumers to increase their spending. An accurate evaluation of the Wesfarmers and Woolworths results may be better undertaken once other retailers report their sales for the first quarter, but it is seems that the interest rate cuts have been impotent or, at least modest, in terms of lifting business investment and consumer spending. Continuing political uncertainty, especially in relation to retirement incomes and maternity leave entitlements; unemployment and underemployment levels that are probably running at double the rate published by the Australian Bureau of Statistics; and increasing household debt levels are sapping consumer confidence and spending. Heaven help the retail industry and the broader economy if interest rates were to move up and add to household budget stress levels. There is little doubt that Aldi and Costco are continuing to cramp the growth of Coles, Woolworths and the IGA and Foodworks independents, forcing price reductions that are eating into profitability as the chains battle for market share. For the first quarter of FY17, Coles posted an increase in food and liquor sales of 2.9 per cent with comparable sales growth of 1.8 per cent while Woolworths managed a 1.7 per cent lift in headline sales with a modest 0.7 per cent gain in like for like sales. It is worth remembering though that Coles and Woolworths have trimmed their sales with price reductions that have created price deflation that Coles estimated was around 1 per cent for the latest quarter. Although marked down by investors, Coles’ managing director John Durkan described the first quarter comparable sales growth as “satisfactory” in current market conditions. Woolworths CEO, Brad Banducci is trying to revive the retail giant’s fortunes. Durkan said there had been an increase in “competitive intensity” at a time when market growth had slowed, but Coles had the flexibility to respond during periods of elevated competition with compelling value, market leading service and quality for customers. One of the interesting aspects of the Coles result was an improvement in the liquor division which has always lagged behind the Woolworths branded chains. Durkan noted that continued improvement in Liquorland’s performance had ensured a fourth consecutive quarter of comparable store sales growth on the back of a transformation strategy to reposition its brands, upgrade stores, restructure pricing and improve ranges. Durkan claimed that Coles’ 4,000 products on everyday low prices remains a key sales driver for the chain, lowering the cost of the weekly shop for customers, although the chain needs to be careful that it doesn’t lose customers with the delistings of branded products, an issue that is becoming a talking point with consumers. Woolworths was given surprising encouragement by media commentators who accepted the retailer’s claim that its transformation strategy was showing positive signs, particularly with customer attitudes. At best, Woolworths’ first quarter performance was modest and a poor return on an investment of around $1 billion in its transformation strategy, including a revamp of its loyalty program, store upgrades and price reductions on a further 600 products in the quarter. Woolworths now has 2,230 products on its “price dropped” and “always’ discount pricing programs. To be fair, Woolworths could not be expected to achieve stellar results in a single quarter and the retailer’s management has had to focus on the messy exit from the Masters Home Improvement debacle and other restructuring challenges. However, while a return to growth for the first time in more than a year, the sales momentum is weaker than for Coles and it is being “bought” at a painful cost to profitability. Woolworths managing director Brad Banducci has warned that profits in the current half will be affected by price cuts and bonus payments to store managers who are charged with trying to lift comparable sales performance through better customer engagement and more motivated staff teams. Banducci indicated that it will take three to five years to really fire up sales and earnings, in part because of the need to upgrade tired stores. While the store upgrade program will take time, Banducci believed he has gained ground with customers through a more consistent offer that has included improved on shelf availability of products, targeted promotions and lower prices as well as shorter checkout queues. Banducci said the proof of the claim is in a 2.5 per cent increase in transactions and a “material improvement in customer satisfaction” from the relaunch of Woolworths Rewards. While Coles has lifted its performance in its liquor division, Woolworths continues to do better in with its Endeavour Drinks Group, which includes Dan Murphy’s and BWS, gaining market share with sales growth of 3.8 per cent in the quarter. Woolworths also performed a fraction better in the convenience and fuel category in the latest quarter, swallowing an 11 per cent decline in sales on lower fuel prices compared to a 13.7 per cent fall in sales for Coles. Woolworths’ total food and liquor sales for the first quarter were $11.3 billion while Coles’ reached $7.85 billion. Woolworths convenience and fuel sales were $1.18  billion compared to Coles’ $1.55 billion. Wesfarmers and Woolworths supermarket businesses, along with Wesfarmers Bunnings Warehouse chain, are the core operations of Australia’s two biggest retailers, but both have ongoing headaches in the discount department store category with sales at Target and Big W plummeting. Both of the chains have developed turnaround strategies but, increasingly, it looks doubtful that both Target and Big W can survive. BIG W posted sales of $880 million for the latest quarter, representing a decrease of 5.5 per cent on the same period in 2015. Turning to sales productivity metrics, Banducci said BIG W’s comparable sales, which were down by 5.7 per cent, were affected by a significant reduction in stock keeping units and clearance activities in deleted lines as well as a reduction in the number of unprofitable promotions. He said the retailer expects modest improvement in apparel sales in the second half as Big W transitions to directly sourced and designed product. “However, this is unlikely to offset the deflation and strategic clearance activity that will continue throughout FY17, impacting sales momentum and margins,” Banducci said. On current trading performance, Big W will be lucky to post a profit in the current financial year after positing a $14.9 million loss in FY16. “Whilst it is still early in our multi-year turnaround, we have made solid progress in driving our strategic plan,” said Banducci. “This includes launching our own online site in the quarter, clearing excess inventory and reducing the complexity of our offer. We remain committed to our clear value positioning which we believe remains a long-term competitive advantage.” Target is in no better shape than Big W with its sales for the latest quarter down an eye-popping 17.1 per cent  to $643 million.  Comparable sales were down 21.9 per cent. Target has effectively been merged with its sibling, Kmart, under the management of Guy Russo. Appointed as managing director of Kmart in 2008, Russo took five years to turn around that chain using an everyday low prices strategy with a streamlined merchandise range. Wesfarmers’ board of directors apparently has no appetite for another long recovery for Target, which posted a $50 million loss in FY16, with Russo moving to cut inventory levels, curtail promotional activity and identify stores that could be closed or converted to Kmart. Guy Russo, CEO department stores at Wesfarmers Russo insists there is room for both the Target and Kmart brands and is working to reposition the chain and recapture its reputation for quality, fashionability and value. Russo said Target is in the early stages of its transition and despite progress being made on pricing, inventory and range rationalisation, results had been below expectations. “We are committed to converting Target to an everyday low prices business and, at this early stage of transition, improvements to product ranges have not been sufficient to offset reduced promotional activity and investments made in price,” Russo said. Russo warned that the Target turnaround would take time, but Wesfarmers will be looking for signs that the chain has a future and will be closely monitoring Big W’s performance as both the chains struggle to survive. For so long the laggard in the discount department stores category, Kmart has left both Big W and Target in its wake with an 11.2 per cent increase in sales to $1.2 billion, contrasting sharply with the substantial decreases of its rival brands. Wesfarmers and Woolworths are both hopeful that Christmas trading will ensure a better second quarter and lift half year results in the supermarket, liquor and discount department store chains and provide some positive signs that their turnaround strategies are on the right track.