THE DISTILLERY: Retail anguish

When the global financial crisis hit, chief executives from around the country – and indeed the world – battened down the hatches. Once the storm had cleared it was apparent we were living in a very different climate and some company bosses knew they had to find a way to weatherproof their houses. The Australian Financial Review's Chanticleer columnist Tony Boyd points out that, whether through poor planning or just bad luck, some of these strategies aren't paying dividends and shareholders have to make up their minds about whether management can persist. Not that Wesfarmers is fighting for survival, but The Age's Adele Ferguson says the conglomerate is still battling to prove the virtues of its model. Meanwhile, Australia's falling productivity and jobs market come up for discussion.

But first, The Australian Financial Review's Chanticleer columnist Tony Boyd says the retail recession has been going for at least two years and the latest actions by Billabong International and Pacific Brands will force shareholders to draw one of two conclusions.

"Billabong chief executive Derek O'Neill revealed on Friday he had been forced to sell half of one of the best youth brands, Nixon, in order to raise $US285 million ($264.4 million) and shore up the financial foundations of the company. Pacific Brands chief executive Sue Morphet, meanwhile, was forced to slash the value of goodwill in the company's underwear brands by $389 million to reflect sharply lower earnings and lower growth prospects. The actions of O'Neill and Morphet will raise questions among shareholders about the strategies that the companies have pursued over the past two years. Some will accept the argument that their businesses have been hit by forces beyond their control. Others will ask why the strategies put in place to reposition both companies have failed to deliver.

The Age's Adele Ferguson puts some serious questions at the feet of the Australian conglomerate model after Wesfarmers produced profit growth of just $55 million in the past six months after a $5.5 billion capital expenditure program from the last two-and-a-half years.

"Not surprisingly a number of investment banks are believed to be busy working behind the scenes trying to find ways to help the company fix the situation. At a recent bank meeting a suggestion was raised to spin off Wesfarmers' highly successful hardware business Bunnings and do an in specie (share) distribution, as a means of adding value to the share price. Another Sydney fund manager suggested splitting the company into two. Others outline several other ways to rev up the share price. These include: the divestment of Target or Kmart, the sale of its insurance division, the sale of coal, and the purchase of one of the many underperforming businesses listed on the ASX. Wesfarmers is also believed to be examining the senior management of some of its underperforming businesses.”

The Sydney Morning Herald's Ross Gittins says Australia's flagging productivity is a crucial issue for the economy, but our understanding of how it works and how to improve it is pretty juvenile.

"The great delusion of the productivity debate is that productivity improvement is a gift governments deliver to business, provided they have the political courage to implement "reform”. Rubbish. As our great private-sector productivity expert Saul Eslake has said: "Productivity only happens as a result of the decisions that are made and implemented in places of work.” So, there's an obvious question no one is asking: why have Australia's chief executives failed to increase their companies' productivity for the past decade? Obvious answer: because it's been easier for them to increase their profits without doing much to increase their productivity.”

The Herald Sun's Terry McCrann says the employment figures may be stable, but that doesn't mean the big sackings from some of our major companies don't have a net impact. McCrann uses the 300,000 to 400,000 jobs lost in America every month, even when the economy is doing well, to demonstrate the point.

"That's right, every week that many Americans lose their jobs, even when the economic sun is shining. In our terms, that would be 20,000 to 25,000 people losing their jobs every week, every month, every year. But usually, more than that find a new job. In mathematical terms, you could "fit" 1000 ANZ job losses into those numbers. But in the real world those sorts of big one-off cuts are different. They do point to something bigger and more serious going on. The critical point is the sort of jobs being lost and what replaces them. Somebody who loses a job in food manufacturing might find work stacking shelves at Coles or Woolies. But that means somebody else does not get the stacking job, and the factory job has gone forever.”

Still on economics, The Sydney Morning Herald's Jessica Irvine makes the case against middle-class welfare. The Australian's David Uren says our senior central bank officials have made it plain – Europe is going to cast a long shadow over the global economy for a long time and Australia's outlook will be impacted in one way or another.

The Australian's Paul Garvey discovers some deep concerns held by Australian mining executives engaged in Africa for Chinese firms bringing in cheap labour to do the work so desperately needed by Africans. The Sydney Morning Herald's Michael Pascoe says China's latest incoming foreign direct investment were soft, but the declining relevance of Europe should be comforting as it means European Union upheavals mean less and less for the emerging superpower.

In company news, The Sydney Morning Herald's Malcolm Maiden says the price at which Billabong International could be sold is now upwards of the $3 a share TPG Capital put on the table. The Australian's John Durie says ANZ Bank chief executive Mike Smith is reaching out to troubled mortgage holders. The Australian's Richard Gluyas suggests that ANZ's decision to cut jobs is relatively unsurprising, given that its costs are beginning to rise almost as fast as revenue. And The Australian Financial Review's Matthew Stevens throws in his two cents as well.