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Wesfarmers:Environmental Analysis

Question:

Discuss about the Wesfarmers for Environmental Analysis.

Answer:

Introduction 

The report critically analyses the rational of Wesfarmers achieving higher performance level of growth and development in its multiple operations. The company has a positive outlook with a special attention on its internal as well as external factors, focusing primarily on customer satisfaction and employee positivity. Wesfarmers, a large Australian retailing conglomerate with diversified portfolio and business operation believe to have value customer loyalty the most with satisfactory returns to its shareholders.

The report is going to broadly discuss the operations of the company keeping its vision, mission and objective in purview.  The internal factors that mainly comprise of the management talent the company possess along with the resources and capital, shall be analysed along with SWOT and cultural understanding. External factors have a larger impact on an organisation with multiple operations due to its exposure and versatility. These factors would be critically analysed both at a Macro level with the help of PESTEL analysis and at Micro level using Porter’s Five Force Model. Competitor analysis would be an important parameter to complete industry analysis and identify its competitive advantage. The financial performance of the company would also be carefully examined to understand the performance trend within the industry for Wesfarmers along with the future scope and planning.

About Wesfarmers

Wesfarmers is a large Australian retail company that was started way back in 1914 by the name of Western Australian farmers’ cooperative and ever since then it has grown multilateral. The company has a diverse business portfolio and operation cover in Supermarket Business; Hotels; Liquor; Office Supplies; Convenience Store; Departmental Store; Industrial and Safety products; Coal; Energy and Fertilisers etc. Today the company has employed around 220,000 people across Australia and New Zealand and boasts of having a base of 500,000 shareholders (Market Publishers, 2016). Wesfarmers has become a company which speaks high over providing value to its shareholders and focus primarily in developing a relationship of trust, loyalty and commitment with them (Wesfarmers, 2016).

Its business has contributed largely to the growth as well as prosperity of the countries it operates having a strong emphasis on protecting environment, it functions with complete integrity and honesty. As a part of its objective, Wesfarmers has complete devotion towards its employee and strongly believes in providing the best working environment for employee, providing opportunities for advancement and a positive reward system.

Mission

Wesfarmers has a mission to achieve customer satisfaction and providing shareholders a satisfactory return on their investment. The company aspires to achieve its objective through following a strict financial discipline along with a strong management having a diverse portfolio of businesses (Wesfarmers, 2015).

The Wesfarmers Way covers a framework that depicts the business model of organization and it also consists of value creating strategies, core values, as well as growth enablers that are directed towards fulfilling Group’s primary objective of providing a satisfactory return to shareholders.

Internal Analysis of Wesfarmers

Management Talent

Wesfarmers among many in its industry employs some of the smartest and shrewdest business brains in Australia. The company as a part of its growth enablers seeks to be an employer of choice. It has its own way and means to attracting outstanding people having commitment and talent. It believes to utilize the individual talent in the most critical way and direct them as a key element in striving for sustainable success. Wesfarmers recognizes that people are the greatest asset for the organization whereas the strategies on which they function are often critical. Ultimately it is the people those who mainly derives the outcome in an organization (Wesfarmers, 2014).

The company strongly believes in gender equality,   strive to create inclusive work environment. It believes to create value of inclusion within the system by having people Aboriginal and Torres Strait Islander traits. Managing talent in Australia is a matter of great precision and engagement initiatives, diversity is believed to be a key element in Wesfarmers ltd. They are committed to embedded diversity initiative at a broader level in a part of its talent management processes in order to develop talent and increase women representation in the management roles (Wesfarmers, 2012).

The recruitment practices of Wesfarmers are most focused on creating sustainability in workforce by concentrating on leadership as well as development program. These programs are well designed to build and attract a pool of talent. The Board of Wesfarmers is currently comprised of 12 directors, including 10 non-executive directors. The ideology behind the determination of Board is to gain advantage from several skills as well as perspectives and also to create a size that helps in effective decision making.  Regarding the composition perspective the Board of the organization believes that the present directors appointed within the company possess the right and desired mix of diversity, skills, expertise as well as that allows the Board to fulfil and deliver the Company’s corporate objectives along with discharging their responsibilities (Wesfarmers, 2014).

Empowering Culture

Culture frames an integral part of Wesfarmers businesses fostering a spirit of team work and coordination. Wesfarmers recognizes that an empowering culture encourage responsibility as well as responsible for providing higher results that has been agreed upon in a corporate planning framework designed by the group. The company widely encourages its team members and employees at all level so that they turn out to be proactive in their view that helps in promoting creation of value in all the businesses (Wesfarmers, 2016).

Resources and Capabilities – in order to understand the resources and capabilities of Wesfarmers, SWOT analysis can be conducted.

Strength –The Company has large number of stores, in-store staff and a growing workforce of around 220,000 employees. It has a major sales volumes picking up from the online stores as well. Customer loyalty and brand presence since 1914 has won customer confidence; higher return to the shareholders is yet another strong pillar of its growth (Global Finance, 2016).

Weakness –the company being a market leader has always been under tight scrutiny of the experts under any critical decision making event. Since the company has major presence in Australia and limited scope outside, the lack of expansion can create stiff competition.

Opportunities –Across Australia the retail industry has shown good growth potential; added to complete change in certain factors such as advancement in supply chain, changing consumer life style, digitization and etc. all these factors have affected the abilities of. The Australian retail sector shows good potential for growth as well as the factors that support the industry for example computerization, improved and enhanced supply chains, retailers along with extending better growth opportunities. Wesfarmers can adapt to the change through its strategy of multi-option retailing in order to compete as well as cope up with the changing needs of its customers (Research and Markets, 2013).

Threat –The prime threats for the retail industry is mainly from the rising levels of competitors in the retail sector with the companies like Woolworths another major supermarket. Apart from this, intervention and policies of the government has another primary as well as significant factor that impacts the growth of Wesfarmers mainly in the Australian retail sector (Market Publishers, 2016).

External Analysis of Wesfarmers

Macro Level Analysis

The macro factors in order to conduct external analyses of factors affecting Wesfarmers performance, PESTEL analysis can be conducted to have a broader perspective as well as impact of these factors.

Political - The political factors usually have a larger impact on the Australian retail industry. The increasing business and dominance of the independent retail supermarkets such as Wesfarmers have created competition for smaller retailers and therefore to restrict that government has come out with required policies. The right of the shareholders and other laws restricting monopoly in the market. Many similar decisions such as lucrative perspective in coal industry, removal of barrier to interest rate on electricity etc has been favourable for the company (Research and Markets, 2013).

Economic –The economic condition of the Australian market broadly affects the performance of Wesfarmers with respect to consumer demand and buying behaviour. The global crises in 2009 affected the market’s consumption behaviour leading to less disposable income. Similarly, its businesses with chemical and fertilizers are affected due to natural calamity as well as climate change (Global Finance, 2016).

Social –Wesfarmers are the major employer with a huge base of employees as well as shareholders within the organization. Wesfarmers acquisition of Coles Group has been able to target a larger population of more than 22 million. The company takes numerous initiatives for the society upliftment; also the company has employment and engagement strategies with Aboriginal and Torres Strait Islander people (Butel, 2012).

Technological –Technology plays a major role in the success of businesses across Australia. In order to strive with the intense competition by investing in stores that are considered as smart i.e. through ‘One-Shop’ and new point of state of technology (Chung, 2016).

Environmental –Across entire industry portfolio held by Wesfarmers has kept special preventive measures to not cause much harm to the environment. Having said that the company has made considerable investment in having technology to avoid wastage of resources, improve resilience of climate change, adequate water usage, etc. It therefore, maintains high standards towards protecting environmental damage (Chung, 2016).

Legal –Legal implication in the form of carbon emission limit has restricted the production of some industries including Wesfarmers across Australia. Carbon Tax, a fair tax policy etc has impacted the performance and production of Wesfarmers ltd.

Micro Level Analysis      

In order to understand the micro level factors, we shall conduct the Porter’s Five Forces Model for Wesfarmers Ltd.

Bargaining Power of the Buyers– the Company being in a retail business, the power of the buyers shall be significantly higher. Other dominant competitor i.e. Woolworth in retail industry provides customer with wider options to choose from. Thereby leading to higher bargaining power of the buyers (IBIS World, 2015).

Bargaining power of the suppliers –the bargaining power of suppliers is considerate to be moderate. Being a part of sourcing Wesfarmers maintains a committed and respectful relationship with the suppliers along with longer-term collaborative partnership (IBIS World, 2015).

Threats of New Entrant –the threat of new entrant is extremely low since the larger firms like Wesfarmers with diverse portfolio and multiple-operation has made it difficult for any new entrant to survive in the Australian retail industry (IBIS World, 2015).

Rivalry among existing firms –Wesfarmers faces moderate competition from companies in different industries which it is trying to mitigate by focusing on providing best services, lowest price and widest range of products. The company ongoing strategies would be to increase customer centricity with customer engagement program (Chung, 2016).

Threats of substitute –In retail business the products are used for regular consumption, therefore not much alternatives are available. Thus, the threats of substitute are lower in such a case. Consumer shall consume what they had been using with little variation without much of a choice (IBIS World, 2015).

Financial Performance

The company has a diversified profile of products and industries it does businesses with including retail chain, insurance, operates mines, manufactures and distributor of industrial product etc. the group together has a revenue of $65,981 million in 2016 which is 5.7% more than last year. The retail chain Coles has made a revenue of $39,242 million i.e. 2.7% up from last year (Reuters, 2016). The Home improvement had a strong sales growth across commercial and consumer categories with a total store sales growth of 11.1% and store-on-store sales up by 8.1 %. The total revenue of home improvement business was $11,571 million i.e. 21.4% more than last year (Chung, 2016).

In the departmental store businesses, the earnings have been affected by $145m due to the reason pertaining to restructuring costs, high level of seasonal stock clearance and a lower Australian dollar price. The Kmart business has still shown progress with its revenue being $5,190 million i.e. 14% more than last year (White, 2015). In its office work department growth has been driven by new and expanded merchandise categories along with price investment as well as improved service level (Thieberger, 2009). The revenue here has been $1,851 million i.e. 8% more than last year. In the case of the industrial sector the saddening condition across the resources sector has majorly impacted the performance of the industrial output. The earning has been at loss causing the total revenue for industrials has been $4,672 million i.e. 6.3% lower than last year (Wesfarmers, 2016).

Operating cash flows of the entire group has been $3,365 million which is $426 million lower than last year. This is mainly driven by lower earnings as well as working capital outflow. The higher working capital investments was plunged into the system in order to improve stock availability in Homebase business and also majorly to support sales growth across the retail businesses (Market Publishers, 2016). Such an investment is partially offset by working capital inflows across the Industrials portfolio. The intense competition overall has reduced the final dividend announced for the year 2016 which is $0.95%, 14.4% lower than 2015 (Wesfarmers, 2015).

Future Scope

Wesfarmers has been the best known for its big retail presence through Coles, Kmart, Bunnings, Officeworks and Target. The smaller farmer’s co-operative structure has very unusually become the most powerful and successful co-operative structure into a $50 billion conglomerate (White, 2015). That is unfashionable, but over a long period of time, the company has  been able to create  trust amongst the shareholders through its works and shareholders  have also enjoyed solid as well as  long-term growth in their share price (Wesfarmers, 2008).However, the retail assets of the company majorly dominate Wesfarmers, making up more than 70 per cent of its earnings and the same has caused some analysts to speculate that it should just concede that it is a retail company and eject the mining, chemical, coal, fertilizer and industrial rump.

The Officeworks business of Wesfarmers are planning to add a recent program that is famously in partnership with Planet Ark, it would be done to further promote printer cartridge recycling in schools. Around 10,000 new rulers were created using recycle cartridges. Around 70 aspiring team members were participated in our Future Leaders as well as Officeworks Leadership programs, providing degree or diploma on completion of the program (Research and Markets, 2013). Also upgraded store layout, new as well as expanded merchandise sections along with the upgraded store-layouts and improved and better service levels have resulted in driving maximum sales as well as rise in earnings growth. There is also a major ongoing investment in service proposition, Business-2-Business (B2B) offers and online platforms (Wesfarmers, 2016).

Conclusion

The report has been instrumental to identify the strategically implication of Wesfarmers resulting to its higher performance on majority of the sector the company has its presence in. the retail conglomerate has a diverse portfolio along with a massive customer base, one prime reason for its popularity and success. The internal analysis was well regulated by SWOT analysis pointing the strength and weaknesses the company possess. Similarly, the external analysis through PESTEL and Porter’s Five Force Model, using both macro and micro level factors are symbolic to the growth as well as fluctuation in the company across different product portfolio.

Bibliography

Butel, S., 2012. Wesfarmers Resources, Aboriginal Employment and Engagement Strategy. Perth: Wesfarmers.

Chung, F., 2016. Woolies loses its crown to Coles. News.com.au, 7 March.

Global Finance, 2016. Australia GDP and Economic Data. Global Finance.

IBIS World, 2015. Wesfarmers Limited - Premium Company Report Australia. IBIS World.

Market Publishers, 2016. Wesfarmers Ltd. Fundamental Company Report Including Financial, SWOT, Competitors and Industry Analysis. Market Publishers.

Research and Markets, 2013. Wesfarmers Limited - SWOT, Strategy and Corporate Finance Report. Research and Markets.

Reuters, 2016. Wesfarmers Ltd (WES.AX). [Online] Available at: http://www.reuters.com/finance/stocks/WES.AX/key-developments [Accessed 29 AUgust 2016].

Thieberger, V., 2009. UPDATE 3-Australia's Myer to list in potential $2.6 bln IPO. Reuters.

Wesfarmers, 2008. Making Difference Together. Australia: Sustainability report - Wesfarmers.

Wesfarmers, 2012. Reconciliation Action plan progress report. Australia: Reconcilation Australia.

Wesfarmers, 2014. Delivering today and tommorow. Australia: Annual Report.

Wesfarmers, 2015. Delivering value today and tommorow. Australia: Wesfarmers.

Wesfarmers, 2016. News Release. Australia: Wesfarmers House.

Wesfarmers, 2016. Shareholders Quick guide. Australia: Wesfarmers.

Wesfarmers, 2016. Wesfarmers - Who are we. [Online] Available at: http://www.wesfarmers.com.au/who-we-are/who-we-are [Accessed August 2016].

White, D., 2015. Globalisation of Australian retail continues apace. Deloitte, 13 January.

 

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