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Woolworths axes 500 jobs and closes supermarkets amid $1 billion corporate restructure -

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MARK COLVIN: The supermarket giant Woolworths is axing 500 jobs as competition from rivals like Coles and the foreign player Aldi hits home.

The jobs going are back office and supply roles, but a number of supermarkets also face the chop over this year and next.

There’s been a stream bad news for Woolworths since its ill fated decision to branch out into hardware though the Masters chain.

Now the company is hoping that cost cutting will turn its fortunes around.

Sue Lannin reports.

SUE LANNIN: Woolworths’ decision to take on the Wesfarmers owned Bunnings has been a nightmare for the once mighty supermarket giant.

It made a half year loss of nearly $1 billion - its first loss since listing on the stock exchange.

Now with a new corporate restructure set to cost nearly $1 billion as well, Forager Funds senior equities analyst Daniel Mueller says it's unlikely Woolies will make an after tax profit for 2016.

DANIEL MUELLER: Look, if you include the write-downs and other one-offs, I think they'll struggle to make a profit. Before those one off items, though, I'd expect they will make a profit.

SUE LANNIN: Today Woolworths announced it was cutting 500 jobs from back office and supply operations.

It also plans to close down 30 stores across Australia and New Zealand, including 21 supermarkets here over the next year. It will also cut the number of new stores it plans to open.

Woolworths chief executive, Brad Banducci.

BRAD BANDUCCI: We are closing some of the tail in our network through the 17 Woolworths supermarkets. But most importantly we are deliberately slowing down the future path lines of store openings and investing the capital we might have put into new store openings into store renewal.

SUE LANNIN: But so far Mr Banducci isn't saying which stores are being targeted.

BRAD BANDUCCI: We haven't detailed that as you would note in the release itself. As we get closer to either closing, as we get close to that we will certainly make the community team suppliers aware of it, but at this stage it causes a lot of undue angst and uncertainty.

SUE LANNIN: Are you able to say which states, or point to which states?

BRAD BANDUCCI: You've got to look at this in the context of 1000 stores, we're talking about 17. So, you know, they're across all states, and they tend to be older stores.

SUE LANNIN: Woolworths also may not renew the leases on another 34 stores. Fund manager Roger Montgomery thinks that means more jobs could go.

ROGER MONTGOMERY: They're good for the business, and potentially for shareholders, obviously not good for the 500 people that are losing their jobs. But unfortunately I do think this is just the start. As the company implements its new strategic direction, I fear that they will lose even more market share, and there may be more job losses to come.

SUE LANNIN: Budget department store Big W is also under pressure, with Woolworths saying that five shops may be closed over the next three years. It's expected to make a loss of up to $17 million in 2016.

Big W boss Sally Macdonald is the former chief executive of luxury handbag retailer, Oroton.

SALLY MACDONALD: We're not closing any stores immediately in Big W. There are potentially two that may close, but we're still in negotiation. There are a number of stores, say five to 10, that we may be opening over the next three to five years in the best, or better malls, bigger malls.

SUE LANNIN: Can you rule out selling the business?

SALLY MACDONALD: That's not my question to answer, that's very much a board decision. I'm completely agnostic as to who owns the business.

SUE LANNIN: Woolworths is looking at selling online retailer easybuy, which hasn't been performing well. Roger Montgomery thinks it's possible Big W could also be hived off like collapsed electronics chain, Dick Smith.

ROGER MONTGOMERY: I think ultimately that's probably the right decision, that Big W is spun off, but I hope for the new management team that's in place, led by Sally Macdonald, that they don't go too soon.

SUE LANNIN: Mr Banducci has been at the helm of the supermarket giant for five months, after Grant O'Brien fell on his sword amid the Masters disaster.

Daniel Mueller says Mr Banducci is trying to steer Woolworths through the tough grocery market, with Coles, Aldi, and Costco breathing down the company's neck.

DANIEL MUELLER: It's been a very competitive environment. It's been very tough for all the players. We've seen Woolworths' profitability drop quite dramatically in a very short space of time.

Just over a year ago they were earning 7 per cent operating margins, and that number now looks like it's going to go down to five or possibly lower.

So, yeah, look, I think Aldi's emergence and to a lesser extent Costco has really made it a very competitive environment for a sector that for the best part of 20 years was I guess from a shareholder's perspective, a Woolworth's shareholder perspective, the gift that kept on giving. It was a natural duopoly.

SUE LANNIN: Investors liked today's news. Woolies shares jumped more than 8 per cent, the biggest one day gain in 19 years.

MARK COLVIN: Sue Lannin.