Big W's big hire

Although Woolworths (ASX:WOW) is still searching for a new CEO, that hasn't stopped it filling other key positions.

Former Oroton (ASX:ORL) chief executive Sally MacDonald, considered one of the best retail minds in the country, has been announced as managing director of its struggling general merchandise division, which comprises Big W and online store Ezibuy.

MacDonald has a great CV including a Harvard MBA and seven years working at the prestigious Boston Consulting Group. It was her time at Oroton, however, where she really made her mark – taking the reins in late 2006 following the company's $9 million loss the previous financial year.

She immediately went to work selling underperforming brands and focussing the company on its strong Oroton business and licence to sell Polo Ralph Lauren (NYSE:RL). She also launched the brand's online store at a time when many Aussie retailers were ignoring this new sales avenue. These were big decisions and they definitely paid off.

Net Profit increased every year during her time as CEO and Oroton's share price also duly increased, hitting a high of $9.24 in 2011 – six times the level when she took charge. 

Ever since her departure was announced in August 2013, however, the company has had very little to cheer about. Its record profit of $27.5 million in 2013 plummeted to $2.6 million just two years later. Unsurprisingly, the company's share price has also fallen, from $6.83 when her departure was announced to $2.75 now, a decline of 60%.

With a record like that, it's easy to see how some could consider MacDonald the saviour of the struggling general merchandise division of Woolworths. However, she faces a much tougher challenge than the one she faced at Oroton in 2006.

Whereas Oroton was a relatively small specialty retailer selling its own branded, high-profit margin products, Big W is a large, low margin retailer selling other company's products in high volume across an extensive store network.

More importantly, Oroton had few competitors to worry about during her time in charge. 

International brands didn't start entering Australia until around 2012/13. Michael Kors (NYSE:KORS), for example, opened its first Australian store around the same time that MacDonald left Oroton. Without taking anything away from her achievements, the entry of international competitors has had a bigger impact on Oroton than her departure from the company. 

Her new employer Big W has had to fight intense competition from Kmart – owned by Wesfarmers (ASX:WES) – which has been heavily advertising on TV and pushing down prices with its private label range. Brands mean very little in this market, products are generally homogeneous and customers are willing to play the two off against each other for the best price.

Kmart's 2015 result shows how successful it has been recently. Whilst Big W/Ezibuy announced comparable store sales fell by seven percent in 2015, Kmart announced sales growth of eight percent. Operating profit for Big W/Ezibuy fell 18% whilst Kmart's grew by 25%. This is as clear a case as any of one company taking market share from a competitor.

Regardless of whether Woolworths ultimately decides to sell its general merchandise division, shareholders will be hoping Sally MacDonald can once more weave her magic. If she's successful, then she'll more than deserve the gong as Australia's best retailer. She definitely doesn't have an easy road ahead, though.

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