7 busi­ness lessons from Woolies

Finweek English Edition - - INSIDE - Buhle Nd­weni buhlen@ fin­week.co.za

When a re­tailer is ahead of the pack like Wool­worths Hold­ings (Wool ies) has been in the re­tail sec­tor, it may com­pel busi­ness own­ers and in­dus­try play­ers to look at its strat­egy and per­haps jot down notes of their own on lessons learnt.

Woolies CEO, Ian Moir, shared some in­sights into the suc­cesses of the busi­ness at the GIBS Fo­rum last week. Here are the seven busi­ness lessons Fin­week picked up from his strat­egy at Woolies: As the South African con­sumer be­comes wealth­ier and the mid­dle class in­creases in size, there is a ris­ing num­ber of con­sumers in the LSM 8-10 in­come bracket. And while Moir ad­mits that Pick n Pay and Check­ers have an in­creased share of th­ese cus­tomers than Wool­worths has, he sees this as an op­por­tu­nity also to cap­ture a share of this mar­ket, es­pe­cially at present, when its com­peti­tors are not per­form­ing at their op­ti­mum.

“Our big­gest com­peti­tors in South Africa are strug­gling, Edgars [on the cloth­ing side] and Pick n Pay on the food side… They have a good busi­ness and they will get there, but they are not per­form­ing as well. And that is the op­por­tu­nity for us to take share. If you can’t take share from your com­pe­ti­tion, then you do not de­serve to suc­ceed,” says Moir.

De­spite on­line re­tail­ing be­ing tiny in SA, Woolies has in­vested on hav­ing an on­line pres­ence. Moir says om­nichan­nel (where the con­sumer ex­pe­ri­ence forms a seam­less whole across all avail­able shop­ping chan­nels, i.e. mo­bile In­ter­net de­vices, com­put­ers, bricks-and-mor­tar, TV, etc.) presents a real op­por­tu­nity for grow­ing the Woolies busi­ness and he be­lieves that al­though SA is be­hind their global coun­ter­parts, retailers should be ready for on­line shop­ping.

“It’s im­pact­ing the way we look at our busi­nesses, the way we look at our cus­tomer, the way we think we in­ter­act with our cus­tomer and it ’s chang­ing our ap­proach to phys­i­cal stores. It will come and we have spent tril­lions mak­ing sure we’re ready when it comes, but when it will come, I don’t know,” he ex­plains. “It seems to be a lot slower than I ex­pected, but that it will come I re­ally be­lieve.”

Draw­ing a par­al­lel be­tween SA and Aus­tralia, Moir, who used to head Coun­try Road be­fore be­ing ap­pointed CEO of Wool­worths in SA four years ago, says that on­line re­tail­ing Down Un­der was in the same po­si­tion as SA is at the mo­ment. But on­line shop­ping has since grown from sig­nif­i­cantly less than 1% to 7% in the past four years. And, look­ing at de­vel­oped economies like the UK and US, on­line re­tail­ing is well in the dou­ble dig­its and keeps chang­ing the pace of re­tail across the globe.

“We do have the big­gest on­line of­fer­ing in SA. But un­til there is a tip­ping point for us in SA for on­line, it will still re­main a small busi­ness. We’ve got to in­vest in it, we’ve got to un­der­stand that this is a long term thing,” says Moir.

3.

PLAN TO BE AHEAD OF NEW EN­TRANTS IN THE MAR­KET

The South African re­tail mar­ket is chang­ing as more new in­ter­na­tional retailers come into the coun­try be­cause of the grow­ing mid­dle class with in­creas­ing dis­pos­able in­come, pre­sent­ing rev­enue gen­er­at­ing op­por­tu­ni­ties for retailers.

Moir says as a re­tailer, Wool­worths has to be ready to com­pete with th­ese new en­trants head-on.

Span­ish fash­ion house Zara will be­come suc­cess­ful in SA, says Moir, so will the sec­ond-largest fash­ion chain in the world Hennes & Mau­ritz (H&M) from the UK, which is ex­pected to en­ter the lo­cal re­tail

mar­ket in 2015 at Mall of Africa in Jo­han­nes­burg, and pos­si­bly get a space to lease at the V& A Wa­ter­front in Cape Town.

Moir says that it’s not just Euro­pean brands com­ing into SA, Aus­tralian fash­ion re­tailer Cot­ton On has done a “very good job of en­ter­ing this mar­ket”.

“They have very good stores, they are a sim­ple but good busi­ness and they have their stores right, their prices right and they are suc­cess­ful.”

Moir says a busi­ness like Wool­worths can’t com­pete with th­ese new en­trants with­out a scale, so they need to make their busi­ness big­ger and have more as­sets than the in­com­ing com­pe­ti­tion.

“So the com­pe­ti­tion is in­creas­ing and you’ve got to be able to rise above such chal­lenges. And om­nichan­nel will come and it will be an op­por­tu­nity and a threat be­cause peo­ple will be able to buy brands from any­where they want,” re­it­er­ates Moir.

But this does not mean for­get­ting about the com­pe­ti­tion you’ve had all along.

“We be­lieve that scale is key. We re­ally be­lieve the big­ger you are, the bet­ter you will be to take ad­van­tage of the op­por­tu­nity and deal with your threats. Time is of the essence, Pick n Pay will get their act to­gether, as will Edgars. So we’ve got time now, but we must move quickly. We must build our busi­ness big­ger, fast,” he says.

4. THE AVER­AGE CUS­TOMER DOES NOT EX­IST

The old days of think­ing cus­tomers will re­turn out of loy­alty are gone. Cus­tomers have knowl­edge about trends in the mar­ket place, about fash­ion, about food, the busi­ness and about the choices avail­able to them in the mar­ket place.

“If the aver­age cus­tomer is ‘dead’, so [is] the aver­age re­tailer… So there’s noth­ing aver­age about the stores, about the on­line pres­ence, about the prod­uct or about the prices,” says Moir.

“The amount of in­for­ma­tion and the amount of knowl­edge has changed the cus­tomer for­ever. They are more savvy, and more de­mand­ing than they ever have been. And you have got to give them what they are look­ing for,” Moir ex­plains.

This in­cludes meet­ing the needs of cus­tomers who watch a UK cook­ing pro­gramme on TV and ex­pect to find an out-of-sea­son prod­uct in SA on Woolies shelves.

“Loy­alty is hard, you have to earn it and de­serve it, and there’s noth­ing aver­age about any cus­tomer,” says Moir.

5. RE­WARD CUS­TOMERS FOR LOY­ALTY

UK re­tail gi­ant Tesco used its Tesco Club­card loy­alty sys­tem to track cus­tomer be­hav­iour and habits, us­ing it to its ad­van­tage to grow into the suc­cess­ful en­tity it is to­day. Woolies has fol­lowed suit, us­ing its WRe­wards loy­alty cards to track how its cus­tomers spend and to rec­om­mend items that could be of in­ter­est to them. It also re­wards loy­alty by giv­ing cus­tomers more cash back the more they shop at Woolies.

Moir says cus­tomer loy­alty is huge in SA, but to get cus­tomers to be loyal is very hard.

“Once they are loyal, they tend to stay loyal, un­less you dis­ap­point them. You dis­ap­point them, they are gone. But you’ve got to make sure you earn their loy­alty and that you re­ward your cus­tomer for it, you can never take it for granted,” says Moir.

“Your cus­tomers are very pre­cious things to your busi­ness, you must treat them un­be­liev­ably well. And then they tend to come back again and again.”

6. KNOW WHAT WORKS AND WHAT DOESN’T

Wool­worths went through a spree of buy­ing back fran­chises in a bid to gain full con­trol of its stores.

For­tu­nately for the re­tailer, this turned out to be a prof­itable ex­er­cise. In its 2013 in­terim re­sult pre­sen­ta­tion the group says: “The group ac­quired one pre­vi­ously fran­chised store in Le­sotho for a cash con­sid­er­a­tion of R6m. In the prior pe­riod 25 South African and seven African pre­vi­ously fran­chised stores were ac­quired for a to­tal cash con­sid­er­a­tion of R292m.”

Moir says it’s more diff icult to man­age the brand with franchising mod­els and now, with full con­trol of the brand, there’s more uni­for­mity across the brand, with all re­tail stores us­ing one mer- chan­dise sys­tem and hav­ing a sin­gle fo­cus. He adds that al­though the re­tailer will never over­look op­por­tu­ni­ties to go into Africa with a part­ner, should an op­por­tu­nity arise, it will not give up con­trol of its brand.

The group had a cou­ple of stores in the busi­ness that were un­der-per­form­ing but they worked hard at re­duc­ing the num­ber of th­ese un­der-per­form­ing stores and are cur­rently left with only one in the group, says Moir.

And there’s al­ways room for im­prove­ment, with just half of its cus­tomers be­ing black, Wool­worths is de­ter­mined to grow this cus­tomer base in SA.

“We want to be the lead­ing fash­ion re­tailer in the south­ern hemis­pere. We need to build the fash­ion cred­i­bil­ity. We need more in-sea­son trad­ing, more units, the world is chang­ing, we need to com­pete with Zara and H& M,” he says.

7. BE OPEN TO VEN­TUR­ING INTO NEW MAR­KETS – LIKE AFRICA

Africa, specif­i­cally sub-Sa­ha­ran African coun­tries such as Botswana, Namibia and Kenya, presents real busi­ness op­por­tu­ni­ties be­cause it’s grow­ing fast. Africa is an op­por­tu­nity, says Moir. But he ad­mits that the group has not done as good a job as they could have in Africa.

“We haven’t un­der­stood the mar­ket well enough. We haven’t pro­filed our stores well enough. We haven’t un­der­stood the man­age­ment of the sup­ply chain into Africa, but we’re get­ting there, and learn­ing ev­ery day,” says Moir. “Africa is not a ho­moge­nous coun­try, ev­ery coun­try is dif­fer­ent, with very dif­fer­ent for­mats.”

Moir says that if the group can im­prove the ef­fi­cien­cies on the ex­ist­ing mar­kets, it would be pos­si­ble to build a big­ger busi­ness, in­crease the num­ber of stores and make Africa a big­ger fu­ture

for the Woolies group.

Ian Moir

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