Big W tipped to be the big winner.
Consumers are expected to abandon Target and Kmart in favour of Big W as the two retail giants merge, according to a report by Bank of America Merrill Lynch retail analyst David Errington. He has described the restructure as “highly problematic” as it will cost the company sales and earnings.
“It is possible that disillusioned Target customers will migrate to Big W, which could be the biggest winner from this merger,” the report says. “This will be the biggest area for sales and earnings leakage.”
Errington predicts that Target would run at a loss of $52 million and $100 million in 2017 and 2018, instead of earning about $100 million in each year.
He also said Kmart’s earning would be $25 million lower next year and $30 million lower in 2018 because of the merger. He cut his forecast earnings for Wesfarmers by 2% this financial year, by 5% in 2017 and just over 6% in 2018.
His report also noted the closure of Target’s head office in Geelong as a costly move.
“We see moving Target’s offices to a location some distance from Kmart’s offices as being costly and disruptive to the business. Closing offices, exiting staff, and rehiring could cost many hundreds of millions of dollars,” the report says.
“We saw when Coles relocated its liquor business from Sydney to Melbourne, the sales and earnings of liquor fell heavily after the majority of management left.’’