Wesfarmers warns government against propping up unviable local manufacturers

14/07/2020

The Federal Government should prevent needlessly propping up Australian businesses as part of a local manufacturing push, according to Wesfarmers Chief Executive Rob Scott, who recently argued that sourcing products offshore is key to maintaining a low cost of living.

Mr Scott recently told The Australian Financial Review‘s virtual retail summit that while the COVID-19 pandemic had highlighted some of the issues with global supply chains, a move away from sourcing products from countries such as China could have an adverse impact on consumers, according to a Sydney Morning Herald report.

“It is important to remember that Australian consumers and businesses benefit significantly from having access to products from all over the world. And if we were to not bring products in from all over the world, ultimately the quality of our products and the price of our products would be very different,” Mr Scott said in the report.

There are a number of products, such as protective health and safety equipment, where it was important to have on-shore options, according to Mr Scott, who also pointed out it that all efforts should be made to remove any existing regulatory barriers for Australian manufacturers.

He also called for caution over any future stimulus or subsidies for the manufacturing industry, in the Sydney Morning Herald report, saying the government should not prop up fundamentally unviable companies for the sake of them being local.

“I would be very cautious about providing material subsidies to try and prop up industries that would not otherwise be viable, because if we do that, ultimately it is going to be Australian consumers and Australian taxpayers that are worse off,” he said.

It is believed Wesfarmers, which operates major retailers Bunnings, Kmart, Target and Officeworks, has experienced some supply issues across its businesses in recent weeks, most noticeably at Kmart which has experienced shortages across its homewares, furniture and kitchen ranges.

These shortages are partially a result of Kmart predominantly stocking products made overseas, which have experienced manufacturing and shipping delays due to the virus. Kmart recently faced criticism from prominent retailer Dick Smith and the Australian Workers Union, which said the retailer should stock Australian-made products instead.

Mr Scott said in the report that Wesfarmers would preference locally-made alternatives where possible, but noted the issue was more complex and that both retailers and customers benefited from being able to access high-quality goods at lower prices.

“To fundamentally move away from that opportunity to leverage competitive advantage would result in significant increases in the cost of living and a significant reduction in the opportunities that we have around product,” he said.

Following a $2.1 billion sell-down of its stake in supermarket giant Coles, Wesfarmers has indicated it is on the lookout for new investments. But Mr Scott tempered investors’ expectations, noting the business was adopting a cautious approach and would instead prefer investment in its existing businesses.

“I certainly do not have a KPI [key performance indicator] in my scorecard about having to do an acquisition, that is not how we think about it. Sometimes the best investment you can make is simply not investing. I do not think we really understand what is going to happen to the earnings side of many businesses across different industries, so I am very happy to be sitting on a very strong balance sheet, investing in our core businesses and adopting a cautious approach.”

Mr Scott also called on the government to increase to the rate of the Newstart allowance, a hike on the tax-free threshold and an axing of payroll tax as a slew of significant fiscal reform to prevent the economy from collapsing once JobKeeper ends in September, according to the Sydney Morning Herald report.