Wizard of Oz
by Heike Dieckmann
A few months after Wesfarmers bought Coles Myer including its subsidiary Officeworks, the scene is set for taking Australia’s only OP superstore chain to new heights.
In November of last year, finance and industry conglomerate Wesfarmers bought Coles Myer for A$20 billion ($18 billion), in the process making it the largest retailer in Australia. As part of the package came Officeworks that, since its creation in 1994, has racked up an impressive tally of 114 stores across the country – that’s from an initial outlook which predicted the market could support a maximum of 50 stores.
Despite its enviable status as the sole OP superstore chain in Australia, Officeworks has always had its fair share of competitors in the marketplace, from direct-to-market operators over general and discount retailers to independent office products dealers and the mighty contract stationers.
And Mark Ward, newly appointed managing director of Officeworks, has his work cut out. Not only does he have to deal with the integration and forward planning of the business, but also with the prospect of having another superstore chain vying for its customers as Harvey Norman, one-time co-bidder for the Coles group, is in the process of launching its very own chain of office products superstores.
Ward is none too concerned about this undoubted threat, making it his mission to ensure that it is Officeworks and fellow store chain Harris Technology where Australian customers choose to spend their money as far as their OP and technology needs are concerned.
OPI: Let’s start with your involvement in Officeworks. When did you take over from Joe Barberis and become managing director of Officeworks?
Mark Ward: I was appointed managing director on 26 November last year when Wesfarmers assumed control of the Coles group. Officeworks is now part of the Home Improvement and Office Supplies Division. I report to John Gillam who is the managing director of Bunnings Warehouse and of the division overall.
OPI: What’s your professional background?
MW: My background entails nearly 30 years in the home improvement industry starting out on the shop floor with McEwans. In 1993, Bunnings acquired that business and the Bunnings Warehouse chain of hardware superstores was developed. A year later, in 1994, Wesfarmers assumed full control of the Bunnings business. Before my current role, I was general manager of Australian operations, responsible to ensure that the stores executed the Bunnings strategy of lowest prices, widest range and best service.
OPI: It’s only been a few months since the acquisition of Coles Myer. How far along has the integration process come as far as Officeworks in particular is concerned?
MW: Since last December our integration has been focused on developing the structure and the operating principles to accelerate our overall growth.
The whole process will continue through the next six months or so, mainly in the areas of financial controls, systems and processes. We will also be introducing various Wesfarmers policies and procedures in the weeks and months to come.
OPI: What is Wesfarmers’ strategy for the Officeworks superstore chain?
MW: It’s the same as it is for any Wesfarmers business – to generate satisfactory returns for its shareholders.
OPI: How many Officeworks stores are there at the moment? Has the number changed since Wesfarmers bought Coles last year?
MW: We currently have 114 Officeworks stores and 12 Harris Technology stores across Australia. The number of stores has remained largely the same. We opened two new stores in the last two months, but they had actually been scheduled to open prior to the Wesfarmers acquisition of Coles at the end of last year.
Our plan is to continue opening stores in under-serviced areas and provide more convenience to customers. We are planning to open four more stores by June of this year – these were also already in the pipeline before the takeover. Beyond that, we expect to open around 10-12 new stores a year as well as a substantial refurbishment programme for our existing stores.
OPI: Please tell me a bit more about the Harris Technology stores.
MW: Harris Technology (HT) is a chain of stores that operates as a specialist computer and technology supplier to businesses and personal shoppers. The stores carry an extensive range and have an expert team that is very knowledgeable about the products.
HT also has a web-based and a call centre-based business which is very strong. Overall, the HT business is a good complement to Officeworks.
OPI: How does the product mix compare to that of a typical Officeworks store?
MW: Our mix is about half technology products and half office supplies and furniture. Furniture is an expanding category for us and represents a great opportunity for sales growth that we will be pursuing very aggressively in the future.
OPI: It sounds as if there is a product conflict between the HT stores and Officeworks – is that the case? And how about physical store locations – is there an overlap?
MW: Well, there are a number of HT stores that are close to Officeworks stores and a number of overlapping products in the tech area. But HT does not sell stationery or furniture and deals with a somewhat different customer segment, mostly small-to-medium-sized businesses looking for total solutions to their technology needs.
Both businesses are able to complement each other in the market.
OPI: You mentioned opening more stores in under-serviced areas – where are these under-serviced areas in geographical terms?
MW: Well, all the states in Australia represent opportunities for a continued rollout of new Officeworks as well as Harris Technology stores. Our greatest spread of stores is in the major capital cities of Melbourne, Brisbane and Sydney, but we do have good coverage in South and Western Australia.
We continue to have stores trading in the central business districts (CBD) in the major city areas, and like in all of our outlets, there are significant opportunities in these CBD stores to improve performance through better targeting of the range that is suited to these markets.
OPI: You mentioned Bunnings earlier. Are there any plans to integrate the Officeworks chain into the Bunnings chain of hardware superstores or open additional Officeworks stores within the Bunnings format? There was some speculation when Wesfarmers bought Coles…
MW: As part of the Home Improvement and Office Supplies Division we will capitalise on any synergy benefits between Bunnings and Officeworks. There are no plans to put Officeworks stores within the Bunnings format. That said, some future opportunities may evolve in terms of co-location of stores on the same sites.
OPI: So what are these synergies between Bunnings and Officeworks?
MW: There are no direct synergies or market correlations between Officeworks and Bunnings. Their customer bases and needs differ significantly, with the exception of the fact that all customers generally need the products that both businesses sell.
OPI: Bunnings also has a presence in New Zealand I believe. Are there any plans to extend Officeworks’ coverage to New Zealand?
MW: As part of our strategy review we will be evaluating the New Zealand market and any other area that we believe would be appropriate for Officeworks and delivers a satisfactory return to shareholders.
OPI: How many staff work for Officeworks at present?
MW: We currently have approximately 3,500 team members and we expect this number to grow in line with our new store rollout.
OPI: Have there been any staff redundancies at Officeworks since Wesfarmers bought Coles?
MW: No, there haven’t.
OPI: What do you think is the current market value of Officeworks? Wesfarmers paid a total of about A$20 billion for Coles Myer…
MW: Wesfarmers bought the entire Coles business so I cannot elaborate on a value for Officeworks at this time.
OPI: Can you talk about current sales per store and comps then?
MW: Not at the moment, other than to say that our comp stores growth is significantly below where it should be, could be and will be going forward.
OPI: How is Officeworks Business Direct performing for you? It’s been over five years since Officeworks bought the former Viking business.
MW: The Officeworks Business Direct channel is performing well and has tremendous opportunity for growth as a complement to our stores network. The challenges in this area are a very competitive price situation with the best players being strong in their cost control and in particular in their logistics.
We are planning to further accelerate that growth by expanding our offer and our customer base over the coming months.
OPI: Please describe the competitive landscape in Australia at the moment? What are the challenges?
MW: The marketplace is very competitive, particularly in the technology area with new and better products constantly entering the market at lower prices. That’s great for the customers, of course.
The challenge for us is to be at the leading edge and be the first to market in this area.
OPI: Is the change of political party and leader in Australia having any impact on general business trends in the country?
MW: The change of government has yet to show any signs of significant difference.
OPI: What’s your view on Harvey Norman’s plans to open OP retail stores in Australia? Officeworks has never had a specific OP superstore competitor…
MW: Officeworks operates in a highly competitive market and we have fierce competition from discount department stores such as Kmart, Target and Big W, B2B suppliers like Corporate Express, Office National, OfficeMax and Office Choice as well as specialists such as Harvey Norman, JB Hi Fi, Wow and Dick Smith. Then, of course, they are also the direct-to-market operators and web-based suppliers such as Dell.
The new Ofis format enters a very competitive market that will ultimately be good for customers and suppliers and we are looking forward to the challenge. Customers will always have a choice of where to shop, and our focus is on ensuring that they make Officeworks and Harris Technology their first choice.
OPI: Have any Ofis stores opened yet in Australia? Can the market support another OP superstore?
MW: Ofis has not opened at this time, but it has at least two stores under construction.
Yes, the market will sustain another operator, but the main point here is that the winner will be the player that consistently delivers the best range, price and service to its range of customers.
OPI: How do you see the prospects for independent dealers in Australia in the future?
MW: There is no reason to think that independents cannot continue to survive and thrive in the market. Like all of us, their offer needs to be compelling for the customers they are targeting.
OPI: What about Corporate Express Australia? It’s been the king of the contract stationery space in Australia for some time, and has recently reported good (although very slightly down) results again.
MW: I cannot comment on this.
OPI: What are the chances of an Office Depot or Staples coming to Australia in retail format and crowding your space?
MW: We cannot know what other businesses are planning. All we can do is make sure the offer we put to our customers ensures that we are their first choice.
OPI: There is no national OP wholesaler in the market. Is there enough logistics support in the country or would the OP market – and small independent dealers in particular – benefit from a sophisticated nationwide player like Spicers in Europe or United Stationers/SP Richards in the US?
MW: A large wholesaler could certainly enter the market. However, there are a great number of very well-run businesses that would not let a new entrant in easily and put up a substantial fight. This includes Officeworks.
OPI: How would you describe private label trends in Australia?
MW: Private label and house brand products continue to gain traction in the Australian marketplace, particularly in the food area. For our industry this is also a growing trend and it will certainly form part of our strategy on an ongoing basis.
What is also important to customers, however, are national and international brands that they know and trust, and this will continue to be the major part of our range and offer.
OPI: What proportion of your overall range are store or private label products?
MW: Our private label brand represents about 15 percent of our range. It’s below what you would typically see in the US market, but probably about the same as our local market competitors.
We will continue to have private label going forward, but our main focus will be on national brands.
OPI: Wesfarmers’ share price has been on a steady decline for the last few weeks – why is that and what impact is this having on Officeworks?
MW: The decline is in line with market trading.
OPI: Where do you see Officeworks in the future?
MW: Our vision if you like for Officeworks is to be the customers’ first choice in terms of their office and technology needs.
We want to be an exciting place to shop and an exciting and rewarding place to work and invest.
OPI: Lastly, do you see Officeworks expanding its retail concept to other areas in the Pacific Rim or even further afield?
MW: At this point our focus will be on streamlining and improving our offer to customers in this country, but we will always keep a careful eye on markets outside of Australia that hold opportunities for us.
OPI: That about wraps it up, Mark. Thank you very much for your time.