Big W has stemmed its losses to $110 million.
Big W has stemmed its losses to $110 million.

New Big W strategy pays off

BIG W has reported its first positive sales growth in nearly a decade.

The struggling department store's sales grew by 0.7 per cent to $3.566 billion in the 2018 financial year, with same-store sales rising 0.9 per cent - the first comparable sales growth since 2009.

Losses narrowed from $151 million last year to $110 million, a 27 per cent improvement in the bottom line. Woolworths said Big W's comparable sales growth accelerated to 2 per cent in the last three months of the year off the back of kids, home and seasonal apparel.

"The fourth quarter was quite strange," Woolworths group chief executive Brad Banducci told analysts on Monday. "(We had an) endless summer followed by a snap winter. It was a quarter of two halves, quite confusing."

Woolworths said by the end of the June, Big W had dropped prices on more than 4500 items, refreshed 165 stores, opened one new store and closed three to end the year with 183.

The chain has "reset" its product ranges "in line with customers' core needs" while expanding click-and-collect to all stores, resulting in a 25 per cent increase in average weekly visits to the Big W website.

The number of items purchased by each customer increased by 3.5 per cent and the number of customer transactions grew by 1.4 per cent, which Woolworths attributed to lower prices, improved ranges and better a digital offer.

Mr Banducci said in a statement that Big W's turnaround "progressed in FY18". "Prices are significantly more competitive than this time last year, the majority of stores have been refreshed and the range is beginning to resonate with customers," he said.

"In FY19, we expect a further reduction in losses as we continue to build momentum in the business but, as always, financial performance will depend on trading over the key Christmas period."

Big W CEO David Walker said there had been a strong start to the new year with the toy sale bleeding over into July. "The key challenge for us was obviously the late start to winter," he said.

"Typically when winter starts late you don't make up the sales. We were fortunate, we tailored our buy for winter and ended up finishing the year with lower inventory, so we're in a good position now."

DGC Advisory retail analyst Geoff Dart said it was "too early to say it's a turnaround". "One swallow does not a summer make," he said.

"They've certainly been doing a lot of promotional activity, but I'm still not convinced it's sustainable. It's pretty easy to buy sales, as Coles have found and are now paying the penalty. It's important to look at the gross margins and the EBIT."

Mr Dart said the main issue was Big W still didn't have a "value proposition, and by that I mean a reason to go there".

"There is an opportunity (long term)," he said. "They're doing nearly $4 billion in sales, it's a significant business (and) substantially bigger than Target."

He said Big W needed to go slightly up-market, to avoid competing with Kmart and instead attempt to take market share from Target and Myer in the "value for money segment".

"Kmart absolutely own cheap and cheerful, Target is cheap fashion, Myer has failed to hold the middle ground," he said. "I think the big opportunity is to cannibalise Myer."

frank.chung@news.com.au



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