ware business, each of the retail brands had had their ups and downs and been subject to critical commentary from financial analysts, investors and commentators. There was a period where most pundits were suggesting that Wesfarmers should quit a struggling Kmart and, more recently, the wisdom of retaining Target has been questioned. Every told Wesfarmers shareholders that Kmart has been “an outstanding success story”, while the company’s CEO, Richard Goyder, told the same meeting Target’s transformation plan was making, “satisfactory progress”. Gordon Cairns, Woolworths’ recently installed chairman, could take heart from Every’s speech when he faces a restive, if not hostile, annual meeting next week (November 26). Woolworths is under pressure to quit the Masters Home Improvement chain it launched in 2011, and to potentially divest the Big W discount department store chain. Every’s reflection that Wesfarmers was convinced the flagging Coles Group businesses could be turned around despite the chorus of external critics could well give Cairns a line of argument at Woolworths annual meeting. There are reports that Metcash has made overtures to Woolworths about acquiring the Masters Home Improvement business and/or the Home independents banner to merge with its own Mitre 10. Metcash has been told it was too early for talks on a possible sale of the business, which is complicated by the one-third stake that the North Carolina based Lowes has in the Masters Home Improvement venture. Lowes will this week release its latest financial results and could well make comment on its intentions regarding the venture, but Cairns will certainly be expected to make a definitive statement at the annual meeting. As Inside Retail Weekly has previously indicated, Woolworths is unlikely to divest Big W despite its lacklustre trading performance, but could well entertain a joint venture partner that would invest new capital and expertise. Woolworths is understood to have been discussing options for Big W with private equity firms and, again, Cairns may be in a position to advise shareholders of a preferred strategy to reinvigorate the discount department store chain next week. Every’s reminder of the Wesfarmers turnaround of Kmart may well allow Cairns to placate shareholders on the premise that, “if they can do it, so can we”, a line that would be more credible if the leadership in the business was resolved following the abrupt departure of former MD, Alastair McGeorge, in August. Holding firm on Masters Masters Home Improvement is a tougher pitch if it remains part of Woolworths’ game plan. Shareholders have already marked down the value of the company and it is now being buffeted by each tremor in Australian stocks. And any plea for patience with the Masters Home Improvement venture will rely on a confident sell of a plan to reboot momentum in the core supermarket business. Cairns could point to the Wesfarmers experience and the fact that, notwithstanding a rocky start as a new business venture, Masters Home Improvement still has solid potential in the fragmented $45 billion plus market. Woolworths and Lowes have around $3 billion in capital locked up in the venture and still appear to be at least three years off turning an operating profit, with stores struggling to better $20 million in annual sales against forecast revenues of $30 million. Former Woolworths executive chairman, Paul Simons, who reinvigorated a flagging Woolworths supermarket chain and powered it past archrival Coles, argues the company should not quit either Big W or Masters Home Improvement. Simons argues that Big W is in better shape currently than it was in 1987, when he was at the helm, and that there is an opportunity for a second major player in the hardware market. Simons said Woolworths has done the hard yards and, while management ranks need to be improved, both businesses could meet future revenue and profit expectations. The revered Simons plans to attend the Woolworths annual meeting and will underpin his views that divesting either business would be unwise and premature by pursuing answers on the extraordinary 2012 Dick Smith sale to private equity firm, Anchorage Capital, for just $20 million and a slice of any improved trading results (see Inside Retail Weekly, November 11 edition). The Woolworths annual meeting is likely to air a number of contentious issues, including the exit package that CEO, Grant O’Brien, will receive. O’Brien is a 28-year employee of Woolworths, but the shine of his career has been dulled by the failure of the Masters Home Improvement chain to meet its forecast results and sluggish growth in its core supermarket and liquor businesses. Analysts and investors are not only concerned about Coles posting stronger growth but, more significantly, worry that O’Brien has left Woolworths vulnerable to Aldi and Costco. O’Brien’s exit package has been estimated at around $10 million and there is agitation for shareholders to vote down the remuneration report to the annual meeting because the CEO’s golden handshake is out of kilter with the loss of shareholder value under his watch. Steady as she goes for Wesfarmers The torrid time Cairns and his directors and key management are expected to face from Woolworths shareholders contrasts with a steady as you go meeting across country last week for Wesfarmers. The performance of the retail businesses did not require expansive explanations from Wesfarmers’ directors and management. In fact, the retail businesses were praised for offsetting losses on the conglomerate’s coal mines and weak returns in its industrial businesses. Every, who was succeeded at the annual meeting by Michael Chaney after seven years as Wesfarmers chairman and 10 years on the company’s board, said the decision of the company to acquire the Coles Group in 2007 had been vindicated with the conglomerate more strongly positioned than ever. “Over my 10 years on the board, the Coles turnaround has been the centre of attention from the investment community and media,” Every told shareholders. “All of the businesses in the conglomerate have had their ups and downs, but Bunnings has been a standout success story over the 10 years, consistently delivering stellar results. Within the businesses acquired through the takeover of Coles, Kmart has also been an outstanding success story.” Goyder told shareholders retail sales for the first quarter of the 2016 financial year across the retail portfolio “had been pleasing”, supported by the continued reinvestment of productivity improvements into lower prices, improved customer service, better ranges and further store network optimisation. “Coles has made a strong start to the 2016 financial year, reflecting the ongoing execution of Coles’ value-led strategy, improvements to its fresh offer and the contributions from new and re-furbished stores,” Goyder said. “Continued investment in lowering prices and better customer service is driving growth in volumes, transactions and basket size. Coles recorded food and liquor price deflation of 1.3 per cent during the first quarter of the 2016 financial year, the strongest level of quarterly deflation recorded in two years. “In fact, we estimate that a typical family shopping at Coles is now more than $600 a year better off than they would have been before we acquired the business in 2007.” Goyder said in a very competitive sector, Wesfarmers was pleased with the continued momentum of the supermarkets business that had delivered lower costs to consumers while boosting shareholder returns. Goyder said Bunnings has continued to perform strongly across all areas of the business, both consumer and commercial, and in all key trading regions and all product categories. Goyder said Bunnings’ strong trading momentum has come from a continued focus on creating more value, improving customer experiences and extending both digital and physical brand reach. Noting the improved results of Kmart, Goyder said the chain has completed a ‘price drop’ campaign to reduce prices on everyday products across the range in July, and further invested in dropping prices in October, “as it remains unwavering on its lowest prices promise”. “Kmart’s sales growth for the year to date has been driven by growth in the core categories of kids, home and apparel. “It is pleasing to see growth in both customer transactions and items sold as Kmart continues to aim to deliver profitable growth through increased volumes.” Goyder said Target is continuing its transformation plan and is making satisfactory progress, but acknowledged there was still “plenty of work to do”. He said customers are responding favourably to the investment made in the ‘higher quality, lower prices, every day’ proposition delivered instore and online. Goyder said in the office supplies business, the ‘every channel’ strategy is continuing to see a favourable response from customers by providing a unique one-stop shopping experience. “Investments made over the past two to three years to enhance the physical and digital offers, in new and expanded ranges and in the customer service proposition have contributed to sales growth, building on the strong results achieved over the past three years. “All of our retail businesses remain focused on delivering increased value, better service and improved ranges to customers with preparations for the Christmas trading period well progressed,” Goyder said. While the conversation around Woolworths is all about divestment and exiting the Masters Home Improvement venture, and possibly Big W, Goyder told shareholders the company is well positioned to take advantage of other growth opportunities that may arise, while always being disciplined and patient. Want more Inside Retail? 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