Introduction to Wesfarmers and Its Retail Sections

Discuss about the Application of Accounting Concepts and Practices to Wesfarmers.

Wesfarmers is a retail company that operates in Australia and New Zealand. The company deals with products such as agrochemicals,coal, fertilizers, industrial and other mining and safety products. With its headquarters in Perth- West of Australia, Wesfarmers has its origins in 1914. Wesfarmers has four retail business units namely Coles, Home Improvements, Department Stores and Office Works. This paper seeks to review the Westfarmers Annual Report to identify the financial performance of each of the retail sections and give a report of performance for the company in 2016 and 2017. Sustainability reporting for each of the retail sections for Wesfarmers is also reviewed and rated.

The Coles retail section has its origin in 1914 when the first store was opened in Collingwood – Melbourne. Since its introduction, the Cole section has grown to be an iconic retailer in the Australian market. The section operates the Coles supermarkets, Liquorland, First Choice Liquor, Coles Online, Spirit Hotels, Vintage Cellars, Coles Financials Services and Coles Express. In terms of financial performance, the Coles sections have been improving year in year out. 

In 2017, the retail section posted a revenue of $39,217 million. Comparing the sales revenue for 2017 to 2016, the revenue was not a big deviation from the previous years. Earnings Before interest and tax for Wesfarmers in 2017 was $1,609 million a decline of 13.5 from 2016. Narrowing down to the individual retail sections, the Food and Liquor section brought a sales growth of 2% from 2016’s figure (“Annual reports”, 2018). The slight increase in sales growth for the subsection is attributed to the continued investment in the quality of service and value of products for the company. Huge transaction volumes were realized as a result of a basket size improvement due to continued focus on the customer offers.

 Despite operating in a very competitive and slowly growing market, the Coles retail section was able to remain committed to its customer-led strategies of increasing sales. This was done through a whole year accelerated investment plan that was aimed at enhancing customers offers (Group, 2018). The proactive investment was able to bring about a lower level of products prices a situation which was attained through a dedicated plan to absorb the inflationary costs factors associated with the production of products such as fresh products and meat. The end result for the investment plan was an increased food quality and improved customer services quality.

Financial Performance Analysis of Wesfarmers and Its Retail Sections

 Another great milestone for Coles retail section is the successful investment plan for new channels and plans which continued throughout the year. The Coles online trading initiative was able to register a double-digit sales growth from 2016 to 2017 (“Coles Supermarkets“, 2018). The Coles Financial services subsection was able to grow with the General Insurance policies being able to successfully complete a 10-year credit card distribution Contract with Citi. The Flybuys was also able to register a lot of growth in the number of its active members. Through the 2017 Annual report, the Managing Director for Coles retail subsection, John Durkan reported that Coles eyes continuing to extend the new channels and services further by increasing the offers advanced to customers in the Financial Services, Coles online and the loyalty program (Flybuys) initiatives in 2018.

The home Improvement retail section is a customer focused business for Wesfarmers found in Australia and New Zealand whose main strategy is underpinned on continued improvement of performance for better gains. During the year ended 30^th June 2017, Home Improvements registered a lot of improvements in terms of operation and financial performance (“Home Improvement”, 2018). This was achieved through a number of progress made in building strong foundations for customers through transformational retail business and development of the Bunnings product brand.

The revenue for Home Improvement retail division of Wesfarmers in 2017 increased by a whopping 17.4 % to $ 13,356 million from the previous years $8,646 million. The improvement in the divisions revenue for the year ended 2017, was highly contributed by the Bunnings product launched in the United Kingdom and Ireland in February 2016 and the growth of Bunnings brand product in New Zealand and Australia (“Bunnings, Kmart and Officeworks were the winners, while Target and Coles struggled.”, 2018). The net earnings for the retail section amounted to $ 1,245 million, a 2.6% increase from the previous year’s earnings of $275 million. The operating revenue for Bunnings New Zealand and Australia also increased to $11,514 million a percentage increase of 8.9% from 2016 (Group, 2018). The overall sales growth for the Home Improvements retail store also increased by 8.9% a level which was arrived at by an increase of 7.3% in store-on-store sales. Bunnings for Australia and New Zealand also registered an EBIT of $ 1,334 million which is an increase of about 10% from 2016’s EBIT of $ 133.4 Million (Group, 2018).                                          

Sustainability Reporting for Wesfarmers and Its Retail Sections

The department stores retail section for Wesfarmers was established in February 2016. The departmental store consists of K-mart and Target. The establishment of these stores was aimed at creating, sharing and maximizing opportunities presented by the iconic brands of the company’s products in the Australian market. 

 Kmart is one of the largest retail departmental stores in Australia with more than 200 stores throughout Australia. Kmart offers a diverse array of products ranging from general merchandise, home brand products to apparel products selling at low prices but providing an exceptional value to customers. Kmart also employs close to 30 000 people in Australia and New Zealand.

Target is also another departmental store under Wesfarmers that has a regional network of close to 300 stores in Australia. The retail unit deals with the sale of a wide range of products including homewares, general merchandise and contemporary products for the family such as apparel. Targets have employed up to 16 000 employees by 2017 across its stores in Australia, New Zealand and also in the support offices in Asia, China and Hong Kong.

In terms of financial performance, the revenue for the department stores was $ 8,528 in 2017 which was a decrease of 1.4% from 2016. The decrease in the revenue is attributed to a lower revenue in Target so that the revenue raised by Kmart was used to partially offset the costs used to grow Target (Group, 2018). According to targets to the Chief Executive officer for the Departmental stores Guy Russo, the sales for Target retail division were driven by the rest of the business and transition to the normal low prices. This situation saw the reduction in the profitability of the overall earnings capacity of the division. It is worth noting that Target had reduced some of its unprofitable events and exited from the loss-making categories a situation which saw the reduction in the overall revenue for the division.

When it comes to Kmart, the unit was able to register higher growth in sales level because of the increased customer transactions in the section. The increase in transactions saw the increase in the number of units per customer. It is therefore evident from the earnings that Kmart did well in 2017 than 2016. The earnings for Kmart in 2017 was $ 543 million a 97.5% increase when compared with the earnings of the unit in 2016 (Group, 2018). For Target, the 2017 earnings reflected a 32.4% increase from $3,456 million in 2016 to $5,578 million in 2017 before removing the restructuring costs that were incurred in 2016 and 2017.

Conclusion

Office works are one of the first retail stores for Wesfarmers to be opened which became operational in 1994. Since its opening, Office Works has grown to be one of the leading supplier retailers in Australia providing office products and other office solutions. The retail section has a wide network coverage with its stores and business channels offering customers with an opportunity to purchase in-store, online or using a phone call (“Office Supplies, Office Furniture, Stationery, Ink & Toner at low prices | Officeworks”, 2018). The retail division seeks to expand and provide a broader range of products for business, students, teachers and other educational institutions.

Looking at the 2017 results for the Office Works retail division for Wesfarmers, it is evident that the section has grown over the period of one year. The revenue for Office works in 2017 was $1,964 an increase of 6.1% from the previous year earnings of $1,851million. The earnings before interest and tax for the section increased to $144 million from 134 million in 2016 indicating a 7.5% positive change (“2017 Annual Report”, 2018). Office Works managing Director Mark Ward reassures the readers that the retail divisions ‘‘every channel” strategy is to continue to resonate with all the customers so that the sales can grow across all its stores and also online. This is the strategy that saw the growth in sales and earnings levels in the store by more than 6%. The sales growth is also alleged to have been driven by store design and layout changes and ongoing enhancements in the online offer coupled with new and expanded products ranges. The relentless focus and effort of the company on providing a greater customer service both in the stores and online is expected to strengthen the position and value of the Office Works retail section.

 Sustainability reporting is becoming is a very important part of the business and financial reporting today. In Australia, corporations are required by a number of standards such as AASB, IAS and government regulations to include a sustainability report in its annual reports. Because of its importance in business and financial disclosure, sustainability reporting is gaining widespread acceptance and a number of big corporations are providing yearly sustainability reports. Wesfarmers has not been left behind in this. Wesfarmers has taken Sustainability reporting as a way of showing openness, mutual concern for the community and diversity relationship with the environment, the community and to the government (Ahern, 2016)

 Looking at the sustainability report for Wesfarmers in 2017, it is evident that the company has sought to disclose and report all the pertinent issues surrounding the social and environmental aspects of the company. Having begun sustainability reporting in 1998, the sustainability disclosure components for Wesfarmers has been revolving around matters Environment, Health and Safety (“Wesfarmers Home”, 2018). Over a period of 2 decades, Westfarmers 2017 sustainability report is being released together with the annual reports but as a separate document. On a scale of 1-10, I can rate the sustainability reporting for Wesfarmers at 8.

The sustainability report for Wesfarmers shows the company’s commitment to creating a long-lasting value for its shareholders, employees, customers and the community by playing an active positive role in the community that the company serves.  The management of Westfarmers believes that their sustainability is about understanding and managing the ways in which the company impacts on the community, the environment and the customers to ensure that the company will remain in a position of being able to provide the same value in future (Compact & Energy, 2018).

From a number of research studies, sustainability reporting has been found to be a reporting framework that fosters accountability in a company. The findings of such researchers are also supported by the propositions of the legitimacy, stakeholders and the new institutional theories (“Sustainability Reporting”, 2018). Trough its sustainability report, Westfarmers shows accountability to all the stakeholders of the organization including the customers and the communities in which it operates.

The sustainability report for Wesfarmers is guided by the materiality concept process of the business. The materiality issues most significant for Wesfarmers are centred on the environmental and social impacts created by the individual retail business divisions to the decisions and assessment of the stakeholders (“Westfamers 2017 Sustainability Report”, 2017). Such material issues involve both internal and external stakeholders of the organization. They include the people working at Wesfarmers at which the company has focused to maintain a relentless effort of providing safe and conducive workplaces, suppliers at which the company has committed itself at forming and maintaining strong relationships and the community at which Wesfarmers always aims at providing a positive contribution to in the society’s that it operates.

References

Ahern, D. (2016). Turning Up the Heat? EU Sustainability Goals and the Role of Reporting under the Non-Financial Reporting Directive. European Company and Financial Law Review, 13(4).

Annual reports. (2018). Retrieved from https://www.coles.com.au/about-coles/annual-reports      

Bunnings, Kmart and Officeworks were the winners, while Target and Coles struggled. (2018). Retrieved from https://www.news.com.au/finance/business/retail/wesfarmers-profits-up-13-per-cent-to-16-billion-as-bunnings-kmart-and-officeworks-shine/news-story/6cf0b1116a53f01b7d9e93b320f21586

Coles Supermarkets. (2018). Retrieved from https://www.coles.com.au/

Compact, U., & Energy, D. (2018). News & Views | Global Compact Network Australia. Retrieved from https://www.unglobalcompact.org.au/gcna-news                                                                   

Group, D. (2018). 2017 Full-year Results. Retrieved from https://www.wesfarmers.com.au/util/news-media/article/2017/08/17/2017-full-year-results

Group, D. (2018). Home Improvement. Retrieved from https://www.wesfarmers.com.au/our-businesses/home-improvement

Group, D. (2018). Department Stores. Retrieved from https://www.wesfarmers.com.au/our-businesses/department-stores

Group, D. (2018). Reports. Retrieved from https://www.wesfarmers.com.au/investor-centre/company-performance-news/reports

Home Improvement. (2018). Retrieved from https://sustainability.wesfarmers.com.au/

Office Supplies, Office Furniture, Stationery, Ink & Toner at low prices | Officeworks. (2018). Retrieved from https://www.officeworks.com.au/

WestfarmersHome. (2018). Retrieved from https://sustainability.wesfarmers.com.au/

Wesfarmers 2017 Sustainability Report. (2017). Retrieved from https://www.wesfarmers.com.au/docs/default-source/asx-announcements/wesfarmers-2017-sustainability-report-released.pdf

Sustainability Reporting. (2018). Retrieved from https://www.globalreporting.org/information/sustainability-reporting/Pages/default.aspx

2017 Annual Report. (2018). Retrieved from https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-report.pdf?sfvrsn=0