Australians’ efforts to make their homes more liveable and work-friendly have turned into a sizeable payday for Officeworks and Bunnings.
The two stores’ popularity has translated into a $1.7 billion annual profit for parent company Wesfarmers, despite the summer bushfires and ongoing uncertainty as a result of the pandemic.
Hardware heavyweight Bunnings saw its earnings climb 13.9 per cent for the 2019-20 financial year to $1.8 billion, while similar growth at Officeworks saw it deliver $190 million in earnings.
University of Tasmania retail researcher Louise Grimmer attributed the strong results to house-bound Australians improving their homes during coronavirus lockdowns.
Bunnings and Officeworks clipped their tickets as Australians rushed to upgrade home offices, prepared for homeschooling, and renovated otherwise neglected parts of their homes, she said.
And they’re not alone.
Dr Grimmer said this type of ‘cocooning’ behaviour was also responsible for JB Hi Fi’s $332.7 million profit reported on August 17.
“It makes perfect sense,” Dr Grimmer said.
“People were starting to think about being stuck at home and what needs doing around their houses.”
But while being in the right business at the right time played a key role in both brands’ success, Dr Grimmer said this was helped along by Wesfarmers’ investment into online sales platforms.
This is especially true for Bunnings, which launched a digital marketplace called MarketLink in November 2019.
Online sales have become increasingly important during the pandemic, as customers have been unable or unwilling to venture into physical stores.
Department stores face more pain
It wasn’t all good news for Wesfarmers, however.
Its Kmart and Target brands recorded losses for the year – though Kmart’s $222 million loss was mostly the result of a $635 million bill to convert some Target stores into Kmart.
Excluding these costs, the business’ earnings came in at $422 million for the year, off the back of a 7.2 per cent jump in revenues.
Long-suffering Target’s poor performance, however, was the result of falling sales – a problem Wesfarmers executives flagged in April.
The parent company is currently in the process of converting 27 Target stores into Kmart locations as part of a broader restructure and consolidation of the brand.
Dr Grimmer said both brands will be hurt by the lack of foot traffic through shopping centres.
“A lot of people go in there for a bit of a shopping experience, and you come out with ten things you didn’t know you needed,” she said.
Although Kmart should be able to reverse its fortunes and adapt to an online world, Ms Grimmer said Target’s days are numbered.
“I was surprised they decided to keep this brand limping along in the restructure,” she said.
Department store brands continue to hurt
Although the stand-out performance of Bunnings and Officeworks helped keep Wesfarmers in the black, the company still suffered a 69.2 per cent profit plunge.
The combination of the coronavirus, devastating bushfires, and continued losses from Target stores, weighed on the company’s profits, which fell from $5.5 billion in 2018-19 to $1.7 billion over the past financial year.
But Wesfarmers managing director Rob Scott told investors in a statement on Thursday that under the circumstances, he was pleased with what the company had achieved.
“The group’s result is a testament to the dedication of team members and leaders across all businesses who have been highly effective in responding to the changing needs of customers and supporting their local communities,” he said.
“I thank them all for their contribution during a very challenging year.”
Earlier this month, Wesfarmers confirmed it will continue paying staff affected by the Melbourne lockdowns even if there’s no work for them.