Woolies stands by costly Oz foray
We’d do it again, says outgoing chair of expensive, troubled David Jones purchase
● Woolworths’s problems in its Australian business have put the retailer under immense pressure. But the acquisition is not a deal the group regrets, outgoing chair Simon Susman said this week.
“We’ve debated endlessly. Would we have taken that decision again? And the answer is yes,” he said.
Woolworths bought Australian retailer David Jones for R21.4bn in 2014, but the acquisition has not yielded the expected results. Four years after the purchase Woolworths had to write off almost R7bn, which led to a loss after tax of R3.5bn in the year to end-June 2018, from a profit of R5.4bn the year before.
Susman conceded that the problems at David Jones were significant.
“We’ve got a big challenge in Australia,” he said. But he said that “David Jones is a magnificent business. We underestimated two or three things, including the scope of change required in a massively under-invested business.”
On Thursday, Woolworths released a trading update for the 20 weeks to November 11 that showed its non-food sales continue to take a knock.
The company’s share ended the week 5.04% lower at R52.90. Since the beginning of the year it is down 19%.
The non-food division, comprising apparel, homeware and beauty at Woolworths, has been struggling to hold on to its shoppers. In August, when it released 52 weeks’ results to June 24, it cited the lack of appeal its women’s fashion held for customers.
It appears the tide has not yet turned.
In the 20 weeks to November 11, Woolworths fashion, beauty and home sales declined 3.3%, while food sales increased 7.2%. Overall group sales rose 2.7%.
Woolworths’s fast-fashion approach is putting off its traditional customers, says Alec Abraham, an equity analyst at Sasfin.
“They’ve been changing strategy too often. My opinion is that in recent years, what they’ve done is moved too young and fashionable in their styling and their sizing,” said Abraham.
“By and large, they’ve alienated a large part of their traditional market and I think that’s the primary issue that they have now. They need to get back to basics as it were in the way they present their fashion,” he said.
The more fashionable clothing is “outweighing the basics in their business”.
The group has not “got that kind of hold on the type of customer that shops for fashionable clothes because they have so many other options, such as Zara. They don’t have that customer and they’re trying so hard to get that customer and they’re losing … the traditional customer,” said Abraham.
But the group has problems to fix in Australia as well.
Wayne McCurrie, an analyst at FNB Wealth and Investment, said it has taken Woolworths a long time to start turning around the David Jones business.
Although costs to transform David Jones have disrupted the group’s performance, the company has brought in new merchandise and reinvented its online platform, which has helped its growth, Woolworths said in its 2018 annual report. “Clearly they overpaid for the company when they bought it but they seem to be turning the ship.
“It’s not fixed yet but it’s going a lot better,” said McCurrie.
Susman said that “business is about risk as well. We all take what we feel are measured risks. If business didn’t take risks, we wouldn’t have any growth.”
We underestimated two or three things, including the scope of change required
Simon Susman Outgoing Woolworths chair