Wesfarmers Ltd (ASX: WES) recently consolidated part of its Target store network and made changes to its online strategy.
Is Wesfarmers in the buy zone in light of these recent changes?
Overhaul of Target store network
Last week, Wesfarmers announced it will implement a strategy to reduce its underperforming Target store network, including converting some larger Target stores into Kmart stores. Some of the Country Target stores will also be converted to either smaller Kmart stores or closed completely.
Wesfarmers’ aim is to end up with a stronger and more sustainable chain of retail businesses. The group’s network of Target stores has underperformed for quite some time despite implementing strategies to improve performance. The sharp downturn in foot traffic during the coronavirus crisis appears to have triggered Wesfarmers to take this latest action.
Enhancement of online retail strategy
Wesfarmers’ online offerings have seen strong growth over the past year or two, in particular, increased demand during the coronavirus crisis. This includes its online Target and Kmart offerings, as well as its pure online offering, Catch.
In a market update at the end of April, Wesfarmers revealed its retail businesses are expanding and upgrading their online offerings to support an increase in demand for product driven by the pandemic. Initiatives recently deployed include a ‘drive and collect’ service at its Bunnings and Officeworks stores nationwide.
Wesfarmers provided a further update on its evolving online strategy through a release last week, revealing that its Target network overhaul will be complemented by increased investment in its online capabilities.
Foolish takeaway
I am attracted to Wesfarmers as a potential company to buy during the coronavirus crisis due to its high level of diversification. Wesfarmers has operations in general retail segments of home improvement, merchandise and office supplies and other segments including industrial.
Wesfarmers has a track record of performing relatively well during challenging economic times such as the one we are in and the group’s strong balance sheet positions it well to ride out the current crisis.
I believe this latest move to consolidate its Kmart and Target portfolio and enhance its online offering should further strengthen an already solid business.
On current prices, Wesfarmers also pays an attractive trailing fully franked dividend yield of 3.87%.
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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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