With numerous people at home amid COVID-19, Wesfarmers gain traction

Summary

• Online businesses have had been booming during COVID-19 pandemic, because of people following social distancing norms and lockdown.
• The shift in consumer behaviour towards online business platforms has been profitable for online retailers such as WES, who witnessed a skyrocketing growth of over 60 per cent in its online sales in recent times.
• Considerable growth noted in the sales by WES’ business divisions (Bunnings, Officeworks and Catch).
• WES is highly uncertain about the continuity of higher level of sales growth for rest of the calendar year, primarily due to considerable changes in the consumer shopping patterns, as well as future changes in government regulations.

Can you imagine your life without online business platforms, be it shopping or mode of payment, during the phase of lockdown and social distancing? No, one surely cannot.

COVID-19 pandemic has given a difficult time for both retailers and consumers.

Imagining lives without online businesses during the phase of lockdown and social distancing is difficult.

The coronavirus induced lockdown kept consumers stay put in their respective homes, and in turn compelled various retailers to close their physical stores, primarily, due to foot traffic plummet.  During the time of difficulty, e-commerce platform emerged as a saviour to sustain the businesses and help the retailers sail through the COVID-19 storm.

Pandemic has impacted the retail sector and brought significant changes in consumer behaviour and shopping patterns.

These changes are expected to take a big leap and stay there eventually, while boosting the online sales of retailers with incremental growth, going forth.

Also, Read; Air Of Optimism Around Retail Sector: Lens On Adairs, Kogan, & Baby Bunting

Australia’s leading retailer, Wesfarmers Limited (ASX:WES) provided an update on 9 June 2020 related to the retail trading, as well as announced continuous actions being taken throughout the Group amid COVID-19.

Source: ASX announcement 

The Group noted a considerable growth of 60 per cent in the online sales to AU$1.9 billion including Catch.

Catch, the online marketplace that was acquired by WES on 12 August 2019 has seen its sales skyrocketing, ~68.7 per cent between January and May amid COVID-19, that led to a boom in the e-retailing and online shopping market. This growth has increased Catch sales so far, in this year till date by 43.7 per cent.

Bunnings sales rose to 19.2% between January and May

The sales at Bunnings witnessed growth to 19.2 per cent till 31 May 2020, in comparison with the growth of 5.8 per cent in the first half of FY’20 ended 31 December 2020 (1H FY’20). The robust sales performance was primarily due to continuous growth in consumer and commercial markets throughout all major Australian trading regions and in all product categories.

Bunnings invested ~AU$20 million on additional cleaning, security and protective equipment over the last three months period in its response to COVID-19.

Additionally, Bunnings will invest ~AU$70 million in FY’20, primarily over trading restrictions across New Zealand; permanent closure of seven small-format stores; and the speedy rollout of WES’ online offering, which include the write-off of legacy e-commerce platform assets.

Officeworks sales increased to 27.8 % between January and May 

Officeworks sales rose to 27.8 per cent between January and May, compared to 11.5 per cent in 1H FY’20. The sales rose due to the high demand for technology, learning & education products and home office furniture. Further, the growth is anticipated to be driven primarily by changes in sales mix and investment in technology, team, price and operating costs related to COVID-19.

Also, WES is uncertain about the continuation of its high-level sales growth for the rest of the calendar year due to significant changes in the usual customer shopping patterns and likely changes to the government measures.

While the sales of Kmart and Target has improved in last few weeks, following an increment in the customer footfall in shopping centres, Kmart’s sales increased only 4.1 per cent, and Target’s sales reduced to 1.8 per cent during the second half of FY’20 until May.

Considerable demand in categories such as home and living at Kmart in recent weeks has led to a shortage in the stocks that are expected to impact sales in June. Additionally, operating costs associated with COVID-19 and temporary closure of Kmart stores in New Zealand, would impact its earnings in the department store division in FY’20.

In late May, WES unveiled its further plans to close 10 to 25 large-format and 50 small-format Target Country stores and considerable restructure of the Target store support office.

An Interesting watch; Company Wesfarmers announced up to 167 stores to disappear | ASX Market Update

WES had also reported a few significant items anticipated in 2020 full-year results:

• Kmart Group would incur ~AU$120-AU$170 million (pre-tax) of costs and provisions, accounting for store closure and related costs of Target.
• Kmart Group to incur a non-cash impairment of ~ AU$430-AU$480 million (pre-tax), consisting of impairment of the Target.
• Industrial and safety division to incur non-cash impairment charge of ~AU$300 million (pre-tax).
• A Gain worth of AU$290 million on the sale of 10.1% stakes in Coles (pre-tax) and AU$221 million (pre-tax) on the reassessment of the Coles remaining investment.

Also, read; Popular Dividend Stock with a Target’ed Rational Strategy: Wesfarmers

Also, WES provided an update on 28 April 2020, highlighting the impact of COVID-19 on retail trading, along with the continuous actions taken across the Group to support team members and customers and further strengthen the Group’s balance sheet.

Source: Company announcement                                                                                                                                                    

As on 9 June 2020, WES shares rose by 0.144 per cent  from its previous close to AU$41.770.