It’s not yet clear whether the acquisition of 11.3% of Coles by Wesfarmers is a prelude to a full takeover or a strategic play to acquire the Officeworks chain. A trading halt was placed on both CGJ and WES this morning pending announcements.
Wesfarmers is the best placed Australian retailer to turn Coles into a silk purse. Their understanding of local markets and customers equips them far better than any combination of private equity and offshore merchants. A Wesfarmers led consortium will have the necessary management skills and leadership to put value back into Coles. While a price of around $20 billion involves big earnings multiples, Wesfarmers can surely see what Coles could become under their leadership. They are buying future earnings.
Wesfarmers owns Bunnings – a successful retailer in the renovation game. I don’t mean renovating houses; I mean renovating businesses. The Bunnings we know today is the product of the rescue of a broken business called McEwans and the renovation following Bunnings’ acquisition of HardwareHouse – their largest competitor.
So let’s assume for the moment that WES gets the whole show and speculate on what transformations they would work.
The first thing that any new owners of Coles must address is the culture. Without that change, all else will have very limited success.
WES understands that organisations with great cultures out-perform those with inferior cultures. They also understand that culture must be owned by the team — the whole business — not just the boardroom or HR. They know that happy team members deliver a better customer experience. They know that swimming upstream isn’t only possible, it’s vital. They are prepared to take risks and expect their team members at all levels to stretch the boundaries. All this is very, very different from Coles.
Many companies express a vision and values, but almost always in a top down sort of way. Bunnings develops vision and values at each store and in each functional area of the company. Thus, someone dealing with an upset customer at the returns desk understands the platform on which they can handle the situation. Values – not procedures and rules.
No one at Bunnings believes they have got it right yet. They don’t believe perfection exists. Challenging the status quo, including challenging the boss, is expected of everyone. I don’t believe the politics free company exists, but Bunnings is about as close as I have seen.
The only rigidity I see at Bunnings is their unflinching adherence to hiring managers whose history suggests they will champion the Bunnings culture. One issue I can see is that it will not be easy to find enough managers for something as large as Coles. Bunnings initially struggled in turning round the culture of HardwareHouse. Perhaps the things they learnt during that transformation would equip them well this time.
And it’s disclosure time. Since 1995, my company Orex has recruited hundreds of leaders for Bunnings. We are proud of our role in what is one of Australia’s greatest retail successes. And my wife still holds her 768 Coles shares.