7 business lessons from Woolies
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.
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.