Wesfarmers Ltd (ASX: WES) shares are flat in early trade today.
The S&P/ASX 200 Index (ASX: XJO) retail share closed yesterday trading for $49.26. In morning trade, shares are swapping hands for $49.23, down a fraction of a per cent.
With little change this morning, the Wesfarmers share price remains up 8.4% in 2023.
That’s the recent price action for you.
Now, here’s why Wesfarmers shares are in the spotlight today.
Why is everyone talking about Wesfarmers shares?
With a market cap of $56 billion, Wesfarmers’ subsidiaries include a range of popular names including Bunnings, Kmart, Officeworks, Priceline, and Target.
But in a move to increase productivity, the Target business segment will be combined with Kmart. Kmart CEO John Gualtieri will run the combined Kmart and Target stores.
With Kmart Group MD Ian Bailey envisioning some difficult times ahead for many consumers facing high inflation and interest rates, the merged businesses are intended to drive value for Wesfarmers shares.
As The Australian Financial Review reports, the combined $10 billion business will keep its two separate consumer-facing brands.
According to Bailey, there will only be a “handful of redundancies”, all of them in the back end of the business, in areas such as technology and merchandise.
In fact, Bailey expects the merged stores to create more opportunities. “We will end up with more jobs in the business a year from now,” he said.
According to Bailey (quoted by the AFR):
Kmart and Target are both strong businesses. I don’t see us doing this from a position of weakness. It’s quite the opposite. I’d say we’re strong, but I think there’s an opportunity to really capitalise on this time and find ways to continue to deliver better value for customers.
What we found was that running two businesses it was very, very difficult to get the tech into Target, and to get those benefits. This is really why we decided to push the two businesses into one.
A lot of the potential added value for Wesfarmers shares comes from the benefits of combining the two stores’ merchandise planning tools and inventory scanning technologies.
“This change enables us to push the same technology into Target because we will get to a point when we will have one technology stack,” Bailey said.
Bailey also pointed to the economies of scale at work, enabling Wesfarmers shares to benefit from the increased size of the combined business.
According to Bailey:
We will run one set of processes. It also means then we have a $10 billion business, which further fragments the cost. So you can see how all of this plays into our productivity improvement.
