The latest results from Australian conglomerate Wesfarmers suggest that Coles, Australia’s second-largest retailer which Wesfarmers acquired in 2007, is reaping the benefits from its turnaround strategy.

Having struggled in recent years from a rampant Woolworths and a fast-growing Aldi on the one hand, and hampered by under-investment and internal conflict on the other, Coles seemed unable to escape a spiral of decline. When the business put itself up for sale and was acquired by mining and energy conglomerate Wesfarmers  – whose only retail experience was with the Bunnings home improvement chain – in late 2007, many were left wondering how much further it could slip.

However, having installed a new senior management team, with significant international retail experience, including Ian McLeod from Halfords, and initiating a five-year turnaround and investment strategy, Wesfarmers has helped the business to thrive.

Results for the year to June 30, 2009, showed that the turnaround continues to meet expectations, with a stronger offer in stores driving increasing customer numbers and basket growth. Total food and liquor store sales at the Coles division – comprising supermarkets, liquor, fuel and convenience – jumped 6.2% with like-for-like sales up 4.6%. Significantly, fourth-quarter food and liquor like-for-like sales growth was 7.3%, suggesting growth accelerated throughout
the year.

Despite the economic climate, the picture was also rosy in non-food. EBIT at the Bunnings home improvement chain was up 11.9%, while revenue increased 9.1%. Meanwhile, like-for-like sales at the Target chain grew 4.2%. In August, arch rival Woolworths had also reported a stellar performance from its consumer electronics division, suggesting that Australians are still willing to spend on discretionary items – in the stores belonging to the big retailers at least.

At Coles, much still needs to be done but there is no doubt it seems to be on the right track and the recent changes and new management have breathed fresh life, and ideas, into the retailer.

The initial success of the turnaround strategy is even more impressive given that it has coincided with the economic downturn. Wesfarmers chief executive Richard Goyder has previously said that although the downturn in sentiment will hit discretionary spending, he views the conditions as “a great time to get our house in order”.

➤ Rob Gregory, research director, Planet Retail. For more information contact us on: Tel: +44 (0) 207 728 5600