Aussie reshuffle shows depth of Woolies’ woes
Share price suffers as group counts cost of expensive expansion
● John Dixon’s axing after less than a year at the helm of Woolworths’ Australia business points to the severity of the issues facing the South African retailer in its biggest foreign adventure to date.
Its share price has fallen more than 40% over the past three years as the investment in David Jones has failed to meet expectations.
Woolworths bought the David Jones department store chain in 2014 for about $2-billion (about R21.5-billion at the time). Dixon was appointed CEO in 2016, after leading a turnaround strategy at Marks & Spencer.
Four years after the acquisition, the one-time bestperforming retail stock on the local bourse has had to write down the investment by R6.9-billion, blaming a downturn in the Australian retail sector and poor or delayed execution of some company initiatives.
Woolworths shares peaked in November 2015 and are now-some 45% off those levels. For this year alone they are almost 10% lower. MRP, without a food segment, is 6% firmer this year, along with Shoprite at 4% lower.
While many in the industry had initially called for Woolworths group CEO Ian Moir’s head, the board has retained faith in the Australian, leaving his compatriot, Dixon, to take the fall, a decision that analysts say now places even greater pressure on Moir.
Australia-based IBIS World senior industry analyst Kim Do told Business Times this week that “the dismissal of Dixon will mean that the strategic initiatives that Woolworths sought to follow will likely be more concrete and executed faster, as there is no longer a buffer between Moir and the Australian subsidiaries.
“Despite this, as the CEOs will now be directly re- porting to Moir, they will be fully responsible for the performance of their stores and would have to personally deal with any issues.”
Under the new structure, David Jones CEO David Thomas and Country Road CEO Scott Fyfe will now be directly reporting to Moir at his South African headquarters.
Woolworths had 706 stores in Australasia and 712 (including forecourt stores) in South Africa as of December.
While-Woolworths did not respond to direct questions, Susie Squire, group head of communications, said: “It’s true that the current global retail environment is challenging, but we are seeing good green shoots across our businesses, including in Australia, and remain committed to all our key businesses.
“We are spending money where we need to and cutting costs where we can, and this change is about ensuring that we are ready to realise the full potential of our businesses and brands.”
Charles Allen, a senior retail analyst at Londonbased Bloomberg Intelligence, said it was clear that Australian retail was very difficult at the moment with quite a few troubled companies.
“Much hangs on how successful the introduction of food into David Jones is and whether it can become a major traffic driver. Also it will depend on how many competitors go out of business, leaving survivors in a better place,” said Allen.
Other Australian retailers such as Myer, David Jones’s biggest competitor, have also faced difficult times.
Dixon was once punted as Moir’s potential successor, but Allen said: “I think that in any business of Woolworths’ size, the board has to consider succession planning for various different eventualities.
“I would think that all the divisional heads, the chief operating officer and the chief financial officer, could also be considered as potential successors.”
But on whether Woolworth’s simplified leadership structure, including the dismissal of Dixon, would unlock any value for the retailer, Allen said: “I don’t think it will make a lot of difference in terms of direct value.”
The ability of Woolworths to fix its problems in Australia would depend on how the firm responded to changing consumer behaviour.
Do said: “Despite fierce competition, there are growth opportunities for department stores.
“The retail environment is evolving as new technologies mean that consumers can now make a purchase anywhere at any time.”
Amazon, one of the world’s most valuable companies and disruptor-in-chief of big retail, entered the Australian market this year. The retailer has upended traditional brick-and-mortar stores in every geography it has entered.
“This means that while the purpose of department stores has traditionally been to sell products, this is changing as in-store experience becomes more important.”
We are spending money where we need to and cutting costs where we can
Susie Squire
Woolworths group head of communications