​Woolworths looks to fix IT basics off the back of AU$1.2b loss

Supermarket giant Woolworths said it will continue working on fixing its technology basics as it settles in with its SAP implementation and upgrades legacy store IT hardware.
Written by Asha Barbaschow, Contributor

Woolworths has ended the 2016 financial year with a AU$1.2 billion loss and the realisation it needs to continue playing catch-up with its underinvestment in IT infrastructure.

Six months into his tenure, the company's CEO Brad Banducci told shareholders that during the year Woolworths made major changes to the way it operates, including the removal of what he called unnecessary bureaucracy, and costs.

"FY16 was a year of unprecedented change for Woolworths. The decisions we have taken and investments we have made have had a material impact on our FY16 results but have been necessary to begin the rebuilding of Woolworths," Banducci said.

"We are seeing early signs of progress as we work to restore our competiveness and improve our culture."

After 20 years of using the same legacy payroll system, Woolworths looked to SAP to overhaul the outdated system and its entire human resources function as well.

"What we needed was simple processes that would take the admin burden away from HR, ensure line managers could be accountable for the development of their people, and employees own and manage their own careers," Alison Merner, Woolworths then-head of HR transformation, said previously.

Woolworths engaged with SAP to deliver an end-to-end human capital management system on the SuccessFactors platform. The rollout was delivered in several modules: Performance objectives, talent and success, payroll and self-service, learning, and reward.

The company told shareholders Thursday that it continues to move through the SAP implementation with "positive momentum", noting it still has more work to do on generating a productivity dividend from the new IT systems implementation.

"While we are seeing early signs of momentum, we are not underestimating the size of the task that lies ahead, especially given the highly competitive nature of the markets in which we operate," Banducci said Thursday. "As we have consistently said, this is a three to five year job."

The supermarket giant will also be rolling out improved IT support to its stores, upgrading RF guns and printers, and providing a more responsive support desk for staff.

During the 2015-16 financial year, Woolworths said its IT foundation program started to play catch-up on the organisations underinvestment in IT infrastructure, which focused on SCO retail solutions and POS upgrades. In one of its stores, Woolworths commenced a pilot testing new NCR Retailx software for point of sale solutions.

The company also claimed to have reduced open store hardware incidents, which appear to have reached the highest annual point in December 2015.

Throughout the year, Woolworths said it focused on five key priorities across the group, with the fifth priority aiming to see the organisation become a "lean retailer" through "end-to-end process and systems excellence".

As part of achieving the key priority, Woolworths will be permanently removing 500 jobs from head office support and distribution. Banducci said the company will continue to review non-customer facing roles throughout the organisation.

Woolworths announced a AU$959 million operating review last month, which includes the absorption of approximately AU$80 million relating to initiatives the supermarket giant is no longer pursuing, the impairment of IT platform assets, and the cost of restructuring consultancy services.

At the time, Banducci said the restructure was already underway, but conceded there was still a long way to go.

For the 12-months ended June 30, 2016, Woolworths reported a group earnings before interest and taxation (EBIT) loss of AU$1.66 billion on overall sales of AU$60.2 billion.

Broken into sectors, the Australian food and petrol segment reported EBIT of AU$1.76 billion, down 40.8 percent year-on-year; while the Endeavour Drinks Group, which includes liquor supermarket chains Dan Murphy's and BWS, saw three percent growth, with EBIT of AU$483.8 million.

EBIT for Woolworths New Zealand supermarkets came in at AU$284.4 million, down 6.2 percent year-on-year; BigW copped a loss of AU$14.9 million, down 113.3 percent from FY15; and the group's Hotels division posted EBIT of AU$208.5, down 11.1 percent over last year.

Dan Murphy's underwent digital expansion throughout the financial year, with the company growing its online presence. BWS will be undertaking its own digital enablement this financial year, including moving towards mobile.

Woolworths brought its Big W marketing agency back in-house in a bid to make the discount department store an "innovative, commercial, and energised" retailer.

As part of its transition, the company expects to increase Big W's digital marketing mix and online sales; drive its email database; revamp catalogues; integrate marketing, online, and design functions; and refresh and grow its online store

On the home improvement front, Woolworths is exiting the market completely, ceasing trading of tumultuous Masters before December 11, 2016. Metcash will also be purchasing Home, Timber and Hardware for AU$165 million.

Woolworths reported for the year ending June 30, 2015 that it spent part of AU$425.9 million on its total transformation project, which included AU$199.1 million before tax on resources and professional services costs associated with business transformation programs, accelerated depreciation of assets no longer in use, and inventory provisioning due to changes in strategy.

Another AU$43 million was put towards redundancy costs, which Woolworths said at the time was primarily associated with restructuring initiatives across corporate-wide support functions, supply chain, and non-customer facing positions.

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