Woolworths dumps Australian staff
Retailer struggles to stabilise after overpaying for underperformance
● The purchase of David Jones may go down in history as Woolworths’ biggest strategic blunder with the ailing department store cutting more jobs to reduce costs and stabilise the business.
On Thursday, Woolworths said it was cutting 16 jobs at David Jones, including that of MD for clothing and general merchandise David Collins. The news comes just a month after the axing of its Australian CEO, John Dixon, when the group said it wanted to simplify its regional structure.
Two years ago when Woolworths consolidated its Australian head office in Melbourne into a “campus-style” workplace to be shared by David Jones, Country Road Group, Mimco, Trenery and Witchery, Woolworths said the consolidation would not result in job cuts.
At the time, group CEO Ian Moir denied the move was a cost-cutting initiative.
Some analysts believe Woolworths should not have bought David Jones, given the trouble it is now giving the group.
Atiyyah Vawda, a retail analyst at Avior Capital, said it should have cut costs earlier and “they shouldn’t have got into it [David Jones] in the first place”.
But even with this millstone around its neck, Vawda doubts that Woolworths would get rid of David Jones.
“They have put in so much cash, they are definitely not letting it go. I don’t even think that’s on the table. But they are correcting the wrongs, they should be doing that.”
Michael Treherne, a portfolio manager at Vestact, said: “When you are growing quickly you can afford to be inefficient because your inefficiencies are hidden by growth. But when you go through tough times like they [Woolworths] are going through now, every cent needs to fight to be spent.”
Vawda said: “David Jones seems to have underperformed and not delivered on merchandising. What they are doing is flatlining the structure.”
Before the recent management changes, Dixon as CEO of Australia reported to Moir, while Dixon had the CEO of David Jones and the CEO of Country Road reporting to him.
A Woolworths spokesperson said, when announcing the management restructuring this week, that “these have been extremely difficult changes to make but they are a necessary step in enhancing our competitiveness and positioning the business for future success. We have offered redeployment opportunities to as many of those affected as possible.”
The group said the changes would both cut costs and complexity “at a time of significant challenges within the retail sector while enabling further strategic investment where it is needed”.
Treherne said management had reviewed its turnaround strategy, which was meant to be completed this year but has now been extended to 2019-20.
The lengthy turnaround process shows how deep the problems at David Jones are. Woolworths admitted in January it had overpaid for David Jones by nearly 33% when it bought the business for A$2.1-billion (about R21.4-billion) four years ago. Woolworths wrote down the value of the retailer by A$713-million (R7.2-billion).
So far this year, the Woolworths share price has fallen 13.3%. It closed with a 2.37% gain to R55.21 on Friday.
Vawda said a stricter structure would help reduce risks at David Jones as decision making would become more agile.
She added that with such chronic underperformance “the brand needs to reinvigorate itself as well”, adding that the success of its Australian business would be based on the success of the private-label business in Australia and optimising their cost-base.
In August last year, David Jones invested A$100-million into building a food-retail business and opened a network of convenience stores, to boost earnings and fight the threat of e-commerce retailers.
Vawda said: “They are trying to get rid of people, but maybe they should first get rid of some space and look at their food strategy.”
Andrew Jennings, author of Almost Is Not Good Enough and former group managing director at Woolworths, said while he was not privy to Woolworths’ current retail strategy in Australia, the bottom line was: “If the business is not taking well and you haven’t got the right merchandise, then you’ve got to do something about it.
“You need to have people in Australia who know the Australian marketplace and South Africans who know the South African marketplace and you’ve got to be relevant to your core customer.”
Treherne said: “You have to trust the management and you have to trust the board to do the right thing.
“The last thing you want is to do cost-cutting by getting rid of expensive employees and a year down the line, you realise that you needed those employees.”
They shouldn’t have got into it in the first place Atiyyah Vawda
Analyst at Avior Capital