Scott embraces disruption at Wesfarmers

Disruption, a demerger and divestments are shaping Wesfarmers’ long-term approach to growth, managing director Rob Scott told last week’s Success & Leadership breakfast.

Initially it seems odd to describe a 104-year-old diversified conglomerate with around $70 billion in yearly revenue as an industry disruptor.

But managing director Rob Scott insists the term that’s usually reserved for new market entrants and small-cap startups also applies to Wesfarmers, even more so after the company spun-out its Coles supermarkets arm into its own listed entity.

Coles began trading on the ASX in its own right on November 21, after shareholders and the Supreme Court of Western Australia approved the spinoff earlier in the month.

Speaking at a Business News Success & Leadership breakfast late last month, Mr Scott said the listing of Coles was a good fit with Wesfarmers’ core business ethos of providing the best possible return to shareholders.

“Coles is a fantastic business, it’s in a good industry position, it has a good management team, it generates good cash flow, it’s defensive,” Mr Scott told a full house at Perth’s upmarket Hyatt Regency hotel.

“But at the end of the day we had 60 per cent of our capital allocated to a business that was a defensive, moderate-growth business.

“And if we wanted to get back to what Wesfarmers is best at, which is really clever capital allocation and driving performance to deliver superior returns, to be honest it was a bit of a no-brainer, demerging Coles.”

Mr Scott said major change such as the $20 billion Coles demerger had been a prominent feature of Wesfarmers’ approach to business since its inception in 1914.

“If you look back, every 10 years the group has looked very different … within our DNA we are a group that embraces change,” he said.

“In many ways we have been disruptors in our business. If you think about Kmart, Officeworks and Bunnings, Kleenheat natural gas, just to name a few, we are all disruptors.

“Coles will deliver $1 billion in online sales this year, Officeworks is a leader in digital and there is a lot more to do. I think we’re fairly well placed to deliver, but you can never be complacent.”

One thing that won’t change, Mr Scott said, would be Wesfarmers’ long view on investment opportunities.

While he acknowledged the spinout of Coles and calling time on the struggling Bunnings foray into the UK and Ireland would allow Wesfarmers to invest in and expand its existing network, he said the company would also seek out opportunities with the potential for a long-term payoff.

“Sometimes the opportunity for Wesfarmers is to look beyond the next one to two years and ask whether we can see an opportunity to create value over five to 10 years,” Mr Scott said.

“Often those opportunities can deliver the best value.

“There are a lot of private equity groups out there and a lot of other groups out there that are more focused on what is the return opportunity over the next one to three years, but for us, I’m more focused on how to create sustainable material value over the long term. 

“To be successful from an investment point of view, we need to be world class and we need to be internationally competitive.

“There’s a lot of capital out there in the market and there is capital chasing opportunities, so we need to be really clear about how we are going to be successful where others can’t.

“That goes back to taking a longer-term approach, looking for ways in which we can leverage our synergies with existing businesses, and probably the most important element is talent and making sure that we have an absolute world-class team and world-class talent in the business.”

Mr Scott said part of that approach would be leveraging new technologies to improve Wesfarmers’ profitability, driven by the establishment of a data analytics division the company is calling its ‘advanced analytics centre’.

Wesfarmers has recruited more than 20 data scientists, data engineers and business translators to help incorporate analytics across the company’s diverse operations.

“We are seeing profound change in the way technology is enhancing business decisions through data analytics and a lot of the advanced analytics tools now enable you to analyse the data and solve problems in a way that you just couldn’t before,” Mr Scott said.

“So what we’ve done in Wesfarmers is first of all we are encouraging each of our divisions to ensure that they are building their capability, that’s where it matters.

“That means having the right team and the right systems.”

He said the analytics focus was designed to give Wesfarmers and its divisions a competitive advantage.

For Bunnings, Wesfarmers’ analytics approach will ensure each store can analyse and predict future demand, tailoring product ranges and stock levels to suit, based on local demographics.

Mr Scott said Wesfarmers would also use analytics to guide the enhancement of its e-commerce capabilities.

“As you know, we pack a lot into a Bunnings warehouse, but we’re running out of room in terms of the amount of stuff we can pack into each warehouse,” Mr Scott told the Success & Leadership forum.

“We don’t want to just keep making them bigger and bigger, but through e-commerce and digital we are able to materially expand our range to provide our customers with even more choice and an even wider range at great prices.

“That’s just one example of why I think this is going to be very important going forward.”