By Patrick Avenell

Turning Coles Around

Wesfarmers has transformed a decaying Coles supermarket business staffed by employees who hated their jobs into a vibrant chain of stores offering everyday low prices on groceries backed by a marketing campaign with phenomenal retention levels, according to a Wesfarmers strategic document released today.

According to this report, staff morale was drastically low in 2007, when Wesfarmers began its transformation program. Staff turnover was at 40 per cent, almost 6 per cent of employees were calling in sick every day and there were more than 4,000 head office workers weighing the retailer down in bureaucracy.

So bad was the “management by fear, conflicting agendas and heavy political undercurrent” that staff complained that it was “hard to convince even my wife to shop at Coles”.

By implementing a 5-year plan focused on store renewal, better layouts and space maximisation and improving team morale through development, Wesfarmers now claims much better customer perception and a cheaper proposition than its major competitor, Woolworths.

In a sign of how successful its brand marketing has been, Wesfarmers quotes internal research that says 65 per cent of consumers recalled seeing the ‘Down, Down’ television commercial and that 93 per cent of these people knew it was for Coles. Wesfarmers does not reveal the efficacy of this campaign in driving consumers to purchase.

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Direct Sourcing Focus

Coles has had a small but growing presence in small appliance and consumer electronics over the past five years. Broadly speaking, Coles sells entry level, trade brand breakfast appliances, benchtop cookers, small-size flat panel TVs and DVD and Blu-ray players.

This presence is expected to grow as Coles continues its efforts to expand its direct sourcing, something it flags when discussing the future of Target and Kmart.

Although currently weathering multiple product recall storms on its Homemaker house brand, Wesfarmers has identified directly sourced products, including appliances and consumer electronics, as a major growth area. This is in line with the thinking at Dick Smith Electronics and the Woolworths retail brands.

By cutting out third party suppliers and/or importers, retailers are able to either offer goods at market low prices or to retain more margin by selling at or around the market rate. The downside of this strategy is that these products are regularly subject to recalls, often because they present a dangerous hazard to consumers.

One of the images presented by Wesfamers shows a Kmart aisle stacked warehouse-style with its “more desirable, own branded products”, including microwaves and vacuum cleaners.

Target will be no different, with future profit based on three pillars: pricing architecture, space and product profitability, and the “continued development of supply chain and direct sourcing”.

Short term problems affecting Target include a late start to winter affecting seasonal clothing and appliance sales, too much inventory and "higher than expected shrinkage", a euphemism commonly applied to in-store theft.

For news on what Wesfarmers is doing in its hardware channel, read Big box retail's big appetite for land: the Bunnings and Masters battle.

Kmart will be increasing its direct importing of appliances.