Wesfarmers Ltd (ASX: WES) shares have experienced a modest decline of around 0.5% today. Despite this, the stock is notably outperforming the broader market, with the S&P/ASX 200 Index (ASX: XJO) plunging by 1.5%. This market downturn is largely driven by investor concerns that the US Federal Reserve might delay its anticipated first interest rate cut.
The spotlight on ASX consumer stock Wesfarmers today revolves around speculation that the company might divest its Catch business. While Wesfarmers is widely recognized for its ownership of Bunnings, Kmart, and Officeworks, it also manages smaller ventures such as the e-commerce entity, Catch.
Catch Acquisition and Purpose
Wesfarmers acquired Catch approximately five years ago for $230 million. The acquisition aimed to bolster Wesfarmers' online shopping capabilities and enhance its digital retail presence.
Recent reports by The Australian suggest that Wesfarmers might be reevaluating the future of Catch. The primary objective of acquiring Catch was to augment Wesfarmers' digital retail capabilities and drive earnings growth. However, Catch has struggled with profitability, raising market speculations that Wesfarmers CEO Rob Scott might consider offloading the online shopping business.
Performance and Improvement Initiatives
Regardless of whether a divestment is on the horizon, Wesfarmers has been actively working to improve Catch's performance. In the first half of FY24, Wesfarmers reported a reduction in Catch's losses. The earnings of Catch improved to a $41 million loss, compared to a $108 million loss in HY23. However, Catch's gross transaction value fell by 29.7% to $317 million, attributed to a strategic reduction in its in-stock range.
Catch has significantly reduced its first-party (1P) range by 70% to 28,000 products, concentrating on profitable and high-demand categories. This strategic shift has improved unit economics and is part of a broader initiative to reduce costs and enhance marketplace capabilities. Catch has also reduced its headcount by 50% as of 31 December 2023.
The company has made substantial progress in operational efficiencies. Warehouse costs per order have been reduced by approximately 30% in the first half of FY24. This reduction is due to lower freight costs per order and faster delivery times. Additionally, Catch has improved its paid marketing efficiency.
Catch is transitioning from a first-party (1P) business model to an asset-light, third-party (3P) model, where sellers are responsible for holding and dispatching stock. This shift is expected to provide greater customer choice and foster seller competition while returning to Catch's roots as a deals-centric platform.
Wesfarmers believes that Catch can leverage synergies with Flybuys and its paid service, OnePass, to drive free customer traffic and reduce acquisition costs. Moreover, the company is exploring new revenue streams, such as "fulfilled by Catch," retail media, and last-mile fulfillment solutions.
Wesfarmers Share Price Snapshot
Since the beginning of 2024, Wesfarmers' share price has appreciated by approximately 16%. This performance highlights the market's confidence in Wesfarmers' strategic direction and operational improvements.
The potential divestment of Catch by Wesfarmers is a significant development to monitor. While Catch has faced challenges, Wesfarmers' efforts to improve the business through restructuring and operational efficiencies are evident. Whether Catch remains part of Wesfarmers' portfolio or not, the strategic moves made by the company underline its commitment to optimizing its assets and delivering value to shareholders.
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