Poor fashion choices, higher clothing prices and a weakened consumer have hit Woolworths hard in SA with the country’s second-largest general retailer by market capitalisation trailing its apparel rivals as it struggles to make up for a costly foray
in Australia.
Sales in SA clothing and beauty products only grew 0.9% in the 26 weeks to end-December, including the busy festive season, compared with the same period in 2018.
In contrast, Truworths reported a 2.7% increase for the same period, TFG saw a 5.9% increase for the nine months to end-December, and Mr Price 3.9% for the 13 weeks to end-December. Mr Price’s figures increased even though it recorded no clothing price inflation.
Woolworths’ share price fell 3.15% to close at R46.15 on Monday, its biggest one-day fall since December 2.
Woolworths’ departing CEO Ian Moir has been running the company from Australia as he struggles to revive David Jones, the department store chain the group bought for R21bn more than five years ago.
Its valuation stood at about R9.6bn since it was bought with backing from the Woolworths board in 2014.
Analyst for Protea Capital Management Jean Pierre said the small increase in sales over the busy Christmas season was a sign of the pressure on SA consumers.
Tough local environment
"While there seems to have been a definite slowdown in the Woolworths SA operations over the festive season [both Food and Fashion, Beauty and Home], it seems to be related to the general tough local environment rather than Woolies management having taken their eye off the ball."
All eyes will be on Levi executive Roy Bagattini, a South African who starts mid-February as Woolworths CEO, to turn around the group’s Australian operations.
He is believed to be removed enough from the Australian purchase to reduce any operations that need cutting.
The Australian operation has just spent more than R2bn on refurbishing its Elizabeth Street flagship shop in Sydney to win back consumers who have switched to online shopping, suggesting a closure has not been on the cards.
At David Jones, like-for-like sales were down 0.4% and Australian clothing brand Country Road up just 0.1%.
Online sales, however, grew 61% to make up 10% of Australia sales.
Woolworths said that net space in its Country Road group fell 8.1% in its half-year to December 29, and further reductions were being contemplated due to rising online sales in the region.
Sasfin Equity analyst Alec Abraham said Woolworths’ performance had been erratic in recent years.
"You haven’t seen a sequential improvement. You have a good quarter or half and they fall or are flat again. They have not got fashion and styling right locally.
"They have done lots wrong in the last few years. They moved their local fashion too young and tight and then they made it very expensive.
"Woolworths is still adamant they want to get the upmarket customer who walks through the store to buy their food to buy their clothes. In the process of trying so hard to get the upmarket food customer they have alienated their bread-and-butter clothing customer."
Abraham said that in Australia’s David Jones stores Woolworths introduced SA brands such as RE and it had backfired.
He said a large part of the case for buying David Jones was the ability to replace the brands in Australia with Woolworths brands, which had a higher profit margin, "but Australians didn’t take to the SA brands".
"They then had Woolworths coffee shops in David Jones and then six months later said the coffee shops were too big."
He said Australian and local stores were in a state of flux as they tried to find their way.
"I’m not surprised their primary goal is to reduce Australian store space. You can’t invest in new stores if you don’t know what they should look like and what you should have in them."
Woolworths’ local food business outperformed the overall market in that category with comparable store sales 5.4% higher.
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