Sustainability Initiatives Of Wesfarmers Retail Businesses

Overview of Wesfarmers Retail Businesses

Wesfarmers is divided into various segments. For this question, the retail and departmental stores segments would be analyzed. In the retail segment, the companies of Wesfarmers are Coles, home improvement, and Officeworks. In the departmental stores, on the other hand, the corporations present include Kmart and Target (Wagner, Block, Miller, Schwens & Xi, 2015). First, Coles is a supermarket, a liquor retailer, a hotel portfolio, a fuel retailer, a financial services agent and a property business operator. Second, home improvement offers building material, garden improvement, home improvement products and improvements of project builders. Third, Officeworks retails office products and solutions for home and SMEs. Fourth, Kmart sells apparel and general merchandise as well as automotive services (Wesfarmers, 2017d). Lastly, Target sells general merchandise, apparel, and homewares. Below is a table showing the revenue of the businesses for the financial year ended 2017.

 Based on the analysis above, Coles earned a higher revenue in 2017 when compared to the other businesses which show that it was performing better than the rest. The one with the least revenue was Officeworks which shows that it was performing poorly when compared to the rest. A comparison between the financial performance of the four divisions from 2016 to 2017 shows that Coles and the Departmental stores performed poorer in 2017 while the Home Improvement division and Officeworks division performed poorer in 2016 (Wesfarmers, 2017c).

Based on the analysis of the gross margin of the four companies for 2017, Home Improvement has a higher gross margin of 9.16% when compared to the other segments. Ultimately, Coles seems to have the least gross margin of 4.10% while in the real sense it had a higher revenue. Based on the profitability analysis of the four divisions for 2016, their gross margins were 4.74%, 10.49%, 7.24% and 3.18% for Coles, the Home Improvement division, Officeworks and the Departmental stores’ segment respectively (Subramanyam & Wild, 2009). According to this financial period, the Home Improvement business had a higher gross margin while Coles had the least.

 Overall, Coles seems to be performing poorer than the other segments. In particular, its

earnings for the financial year ended 2017 decreased by 13.5% from $1,860 million in 2016 to $1609 million in 2017 with the sales of food and liquor growing by 2% and that of building growing by 1% (Sinha, 2012). These product segments especially the liquor and food segment grew due to the fact that the company had progressed in its price, range, and quality. However, the business reported lower revenue in the financial year ended 2017 since it declined from $39,242M in 2016 to $39,217M in 2017 due to lower fuel volumes.

Financial Performance of Wesfarmers Retail Businesses

 From the table above, Home Improvement had a higher ROCE than the other divisions. It is seen that the ROCE of Coles and Home Improvement declined from 2016 to 2017 while that of Officeworks and Departmental stores increased.

According to the table above, Officeworks has the highest total assets turnover when compared to the other divisions. From the table, it is evident that the total assets turnover of all divisions dropped except for the Departmental stores division. This could mean that the efficiency of the total assets of the divisions is declining.

When we look at the financial performance of the Home Improvement business, its earnings increased by 2.6% from $1,214 million in 2016 to $1,245 million in 2017 which was attributed to the strong growth in BANZ. Specifically, BANZ realized a growth in earnings of 10% to $1,334M which contributed to the great earnings growth of the Home Improvement segment (Kieso, Weygandt & Warfield, 2010). In terms of revenue, the BANZ business grew by 8.9% which shows that the Home Improvement segment is performing well. Despite this, the BUKI business (the Bunnings United Kingdom and Ireland) of the Home Improvement segment recognized a loss before interest and tax of $89 million for the financial year ended 2017 despite having a revenue of $2,072 million.

Third, the departmental stores performed better when compared to Coles and the Home Improvement segments. Based on the analysis of the segment, it is evident that the department stores division realized an increase in earnings of 97.5% from $275 million in 2016 to $543 million in 2017 which could be attributed to the improved performance of Target and the strong growth in Kmart (Karna, Richter & Riesenkampff, 2016). Ideally, the earnings of Kmart increased to $533 million by 17.7% while its revenue grew by 7.5% which is a good indicator of a performing business. Additionally, the departmental stores realized an increase in return on capital to 43.7% which could be attributed to their strong capital disciplines.

If it was not for Target, the Departmental stores would have a greater earnings growth than it currently has. Apparently, this is because the firm reported a loss before interest and tax of $10 million which was an improvement from the previous period while its revenue dropped by 14.6%. However, the earnings of Target were $3 million above $53 million of the previous year. The main factors that could be attributed to the strong cash flow and increase in earnings of the departmental stores are the fact that they had improved their inventory management and they had a good cost control system. 

Sustainability Measures Implemented by Wesfarmers Retail Businesses

Lastly, the Officeworks division also performed better when compared to Coles and the Home Improvement division. Ideally, its earnings increased by 7.5% from $134 million in 2016 to $144 million in 2017 while its revenue grew by 6.1% from 2016.  Ultimately, its earnings continued to grow while its ROIC improved due to the fact the management had executed a good strategy successfully dubbed ‘every channel’ strategy (Alin-Eliodor, 2014). Additionally, the division has huge investments in prices, enhancements to the environment of the division, online offers and a diversified portfolio of merchandise which the customers are responding well to.

Question 2: How do the retail businesses of Wesfarmers show sustainability

All the divisions of Wesfarmers are seen to invest in sustainability initiatives. First, Coles is seen to have concern for the environment due to the fact that the company invested $15 million in energy efficiency which included LED lighting, upgrades in electricity, installation of solar power and hot water control improvement (Grade, 2010). Additionally, Bunnings of the Home Improvement division installed 100 Kilowatts solar photovoltaic systems which have enabled the company 10% to 20% averagely of the daily energy needs of the Home Improvement store. Furthermore, Kmart and Target have been able to provide continuous monitoring of energy use and they have supported investment in energy efficiency initiatives. Lastly, Officeworks implemented an LED lighting which involved installing lighting to 35 additional stores (Graham, 2009). As a result of this, 65% of the stores of the Officeworks now have LED lighting which is a good thing since it reduced energy consumption by over 9.5% in the past year.

Another sustainability measure implemented by the divisions relate to recycling of waste. Coles puts innovation and improvement of recycling programs at its core. This is evident by the fact that their waste reduction increased by 3% in 2017 (Netbalance, 2010). Besides, in 2017 July, the management of Coles announced that they would implement recycling of plastic bags to prevent pollution with its REDcycle plastic packaging recycling program. Officeworks has used the label of Australian recycling in more than 800 of their products in a bid to encourage the recycling of product packages.  Bunnings which is a business within the Home Improvement division has taken product stewardship initiatives (Rowe, Nowak, Quaddus & Naude, 2014). In particular, in June 2017, Bunning held a paint collection day run where they were able to collect more than 3.4 tons of paint which they recycled in order to prevent wastage.

Impact of Sustainability Measures on Wesfarmers Retail Businesses

Lastly, Coles is the only segment of Wesfarmers that is seen to implement sustainable agriculture. Ideally, the company rolled out an app program for their farm which would go a long way in supporting its suppliers, thus ensuring that they improve their farming operations’ sustainability by monitoring the performance of the environment in which they operate in, by enhancing traceability of their products and by training the employees on how to manage the farm’s produce effectively and efficiently (Wesfarmers, 2017a). This can be seen from the fact that during the year, Coles was able to partner with a leading agrienvironmental consultancy firm in order to be able to conduct a carbon footprinting assessment on the beef of their producers to determine whether it was healthy to consume. Furthermore, the company was able to launch the Coles Agronomy Group which helped growers to volunteer their time in addressing industry challenges relating to labor practices, development, the use of water and agronomy of fresh produce in the sector.

How I Rate this Sustainability

Overall, all the four divisions of Wesfarmers have implemented sustainability initiatives concerning energy efficiency which has reduced their energy consumption. In particular, Coles invested $15 million in energy efficiency, Home Improvement division installed 100 Kilowatts solar photovoltaic systems, the departmental stores provided continuous monitoring of energy use and Officeworks implemented an LED lighting which involved installing lighting to 35 additional stores. Additionally, the four segments have shown a huge concern on recycling and waste since Coles has implemented the REDcycle plastic packaging recycling program, Home Improvement division has taken product stewardship initiatives, and Officeworks has implemented the Australian recycling label in its packaging (Wesfarmers, 2017b). Lastly, Coles has enhanced sustainable agriculture through an app that ensures that their suppliers improve the sustainability of their farming operations. In ranking the sustainability of these divisions, I would rank Coles as having the best sustainability initiatives, followed by Home Improvement, then Officeworks and lastly, the departmental stores. 

References

Alin-Eliodor, T. (2014). Financial Statements Analysis. Journal of Knowledge Management, 4(5), 62-73. [Accessed on 24^th May 2018].

Grade, G. B. (2010). Corporate Governance of Wesfarmers Ltd. [Accessed on 24^th May 2018].

Graham, S. (2009). Sustainability Reporting. Financial Management (Journal article), 27. [Accessed on 24^th May 2018].

Karna, A., Richter, A., & Riesenkampff, E. (2016). Revisiting the role of the environment in the capabilities–financial performance relationship: A meta?analysis. Strategic Management Journal, 37(6), 1154-1173. [Accessed on 24^th May 2018].

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2010). Intermediate accounting: IFRS edition (Vol. 2). John Wiley & Sons. [Accessed on 24^th May 2018].

Netbalance (2010). Stakeholder Engagement Report: Wesfarmers Limited.

Rowe, A. L., Nowak, M., Quaddus, M., & Naude, M. (2014). Stakeholder engagement and sustainable corporate community investment. Business Strategy and the Environment, 23(7), 461-474. [Accessed on 24^th May 2018].

Sinha, G. (2012). Financial statement analysis. PHI Learning Pvt. Ltd. [Accessed on 24^th May 2018].

Subramanyam, K. R., & Wild, J. J. (2009). Financial statement analysis. McGraw-Hill. [Accessed on 24^th May 2018].

Wesfarmers (2017a). Wesfarmers Sustainability Report 2017.

Wesfarmers (2017b). Wesfarmers: Our Approach to Sustainability.

Wesfarmers (2017c). The Annual Report of the Divisions of Wesfarmers.

 Wesfarmers (2017d). The Annual Report of Wesfarmers.

Wagner, D., Block, J. H., Miller, D., Schwens, C., & Xi, G. (2015). A meta-analysis of the financial performance of family firms: Another attempt. Journal of Family Business Strategy, 6(1), 3-13. [Accessed on 24^th May 2018].

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