The Woolworths fashion mea culpa
‘WE WENT TOO YOUNG AND FASHIONABLE’ Analyst backs this up, citing the introduction of David Jones and Country Road lines as flawed.
It’s been another year of Woolworths blaming its slow growth, which is undermining its ambition to become a substantial retailer in the southern hemisphere, on its own fashion faux pas.
It is an excuse shareholders have heard before: the retailer’s growth was stunted by problems at Australian department chain David Jones, which Woolworths bought in April 2014 for R23.3 billion, and the poor execution of fashion choices in SA.
The group’s overall turnover grew 1.6% to R75 billion for its financial year 2018, with its SA clothing and general merchandise business leading the decline in sales. Sales fell by 1.5% due to what Woolworths describes as “poor execution” in womenswear.
In an interview with Moneyweb, Woolworths group CEO Ian Moir was candid about the retailer’s self-engineered missteps.
“We need to admit that we got it wrong,” he says. “We went too young and fashionable with our womenswear. The garments, prints and fit were wrong. We are a broad church, as our average customer age is 40-plus.”
Woolworths was attempting to compete with international retailers like H&M and Cotton On, which are perceived to offer value that attracts a young and fashionable shopper.
Ron Klipin, a senior analyst at Cratos Capital, believes Woolworths’ problems go deeper than just fashion choices: “Woolworths moved away from its basic style and dependable clothing to introduce David Jones and Country Road brands, which, in some cases, are not up to standard in terms of quality. The style is too different and the price is high. Customers don’t understand the Woolworths offering anymore.”
Woolworths shareholders have heard the excuse of botched fashion ranges before. The retailer was forced to engage in excessive promotional activity in 2016 due to a late start in winter. It also had to pull back its home-grown private label brands, including Studio W and RE at David Jones stores in Australia.
Moir says Woolworths is going back to the basics by focusing on basic clothing items at a lower price. The strategy is not promising growth yet; sales in the first seven weeks of the new financial year fell by 1.7%.
So precarious is the clothing business that Woolworths has cut the operating profit margin guidance from 18% for the financial year 2019 to between 14% and 16%. “We want to make sure the market is clear [about our challenges] and that we don’t over promise,” says Moir. An improvement in the business is not going to happen overnight, he adds, and double-digit growth “won’t happen anytime soon”.
The SA clothing business is key to Woolworths as it has traditionally generated nearly a third of the group’s operating profit. But for the period under review, Woolworths’s food business trumped clothing – R2.2 billion versus R1.7 billion. “Food is once again saving this business from total collapse,” says Cassie Treurnicht, of Gryphon Asset Management.