Wesfarmers Ltd (ASX: WES) shares are down around 0.5% today, though the stock is noticeably outperforming the market. The S&P/ASX 200 Index (ASX: XJO) has fallen a nasty 1.5% as some investors expect the US Federal Reserve to delay its first interest rate cut.
The news of the day regarding Wesfarmers stock, albeit only speculation at this stage, is that the company's Catch business may be headed for the chopping block. Wesfarmers may be best known as the owner of Bunnings, Kmart, and Officeworks, but it also owns some smaller businesses, including e-commerce player Catch.
The company acquired Catch approximately five years ago for $230 million as it looked to expand its online shopping capabilities.
Catch to be dropped?
According to reporting by The Australian, there are "suggestions" Wesfarmers may be considering the future of the e-commerce business.
The purpose of owning Catch was to assist with its overall digital retail capabilities and help grow earnings.
The Australian noted the Catch business has been making losses for years, leading to a "view in the market" that Wesfarmers boss Rob Scott may want to call it quits on the online shopping business.
Recent performance and improvement initiatives
Whether a divestment is imminent or not, Wesfarmers has been working hard to improve the Catch business.
In its FY24 first-half result, Wesfarmers reported it had reduced losses made by Catch. Catch's HY24 earnings improved to a $41 million loss, from a $108 million loss in HY23. However, it also reported Catch's gross transaction value fell by 29.7% to $317 million which was "driven by [a] planned reduction to [the] in-stock range".
Catch has reduced its first-party (1P) range – products it sells directly on behalf of other businesses – by 70% to 28,000 products, focusing on profitable, in-demand demand categories.
The adjustments improved unit economics, and the online retailer is continuing to reduce the cost base and "develop enhanced marketplace capabilities." It also reduced its headcount by 50% over the year to 31 December 2023.
The warehouse cost per order was reduced by around 30% in the first half of FY24, with lower freight costs per order and faster deliveries to customers. Wesfarmers also boasted that Catch has more efficient paid marketing.
Catch is looking to shift from a 1P business to an asset-light, third-party (3P) business (where sellers are responsible for holding and despatching stock). This can provide greater customer choice and seller competition, while returning to Catch's "deals heritage".
Wesfarmers stated the online retailer can leverage Flybuys and Wesfarmers' paid service, OnePass, to drive free customer traffic and reduce customer acquisition costs.
The company also believes it can develop new revenue streams, such as "fulfilled by Catch", retail media and last-mile fulfilment solutions.
Wesfarmers share price snapshot
Since the start of 2024, the Wesfarmers share price has risen by around 16%.
