Woolworths to accelerate WEdit rollout
Group has its eye on semi-urban areas with smaller stores
● Woolworths will accelerate the rollout of its WEdit clothing stores, which are smaller and mainly targeted at semi-urban areas, allowing the group to tap into new markets as it doubles down on growing its business.
The high-end retailer already has 30 WEdit stores including in Gugulethu, Giyani and Modimolle, and will add 20 to 30 every year. The rollout is part of a R10bn capex plan over three years. Some of the money will be spent on improving its supply chain.
CEO Roy Bagattini said the stores are 10% or 15% the size of the company’s bigger stores and are in areas where they typically wouldn’t have a Woolworths store.
“In the past, our approach was that if you want to open a store it’s got to be big with all these clothing categories and products. But in the past 18 months we shifted a little on that. There isn’t a lot of opportunity to open those big stores. But there are a lot of South Africans that don’t have access to Woolworths, hence the much smaller stores.”
The products are also limited but it’s the “best of Woolies”, Bagattini said, adding that if products don’t do well they are quickly replaced. “So far the stores are working exceptionally well. I think this is an opportunity that we have been missing out on for a long time.”
Sasfin Wealth senior equity analyst Alec Abraham said: “I’m in two minds about the WEdit store rollout. On the one hand, there is no volume growth in the market, so one can only grow sales by taking market share, and more locations in areas that can’t support a full store will help to grow the catchment area of sales.”
However, that may add to stock levels if the products in these stores don’t move quickly, he added.
“Woolworths’ historic record of matching a curated range with the customers in a particular area has been less than stellar... which may contribute to slower moving stock,” Abraham said.
Bagattini has acknowledged that stock availability has been a long-standing challenge, but said that management is intensifying efforts to rectify that.
“This is still a big frustration for our customers and one that dates back well over a decade. I think it’s safe to say that our availability is no less than 10 percentage points but probably closer to 20 percentage points off where it should be. So it’s a big challenge,” he said.
“But conversely, it’s a huge commercial opportunity for our business. And what makes this opportunity even more compelling is that it’s not dependent on the macro turning around or any other factor for that matter. This is on us. Let me be clear, though
— this is not a quick fix. It’s going to take time.” The performance of Woolworths’ fashion business during the six months to December was hit by congestion at ports that delayed certain summer ranges. To mitigate the impact, the company is now placing smaller orders quite frequently to reduce reliance on one big shipment. It is also directing orders to ports with less friction.
“Occasionally, if specific opportunities present themselves, you would actually airfreight in product at the same time. But clearly that’s quite costly, and not something that is sustainable. So we only do that by exception,” Bagattini said.
Port congestion has also hit another clothing retailer, Truworths, resulting in lower-than-expected deliveries of imported merchandise in the past two quarters, adversely affecting sales in the peak festive season trading period.
While Woolworths’ fashion unit was disappointing, the food business continued its solid performance, supported by improved
availability and strong festive season trade.
Abraham said Woolworths had done much to fix the profitability in the clothing business, which has recovered by almost five percentage points since its trough in 2020, from 7.6% to 13.3% in the 2023 financial year, albeit still off its historic average of around 17%.
Jan Meintjes, portfolio manager at Denker Capital, said the results were a mixed bag. “The food business surprised me with a strong performance. I did expect some margin pressure given their strategy to invest in price and continue to grow into more everyday products,” he said.
The fashion, home, and beauty business was a “bit disappointing as my expectation was that higher full price sales would lead to improved performance. But the consumer weakness meant that they struggled with volumes. So yes, better margins, but on a smaller sales number which then saw profits come under pressure.” At Woolworths’ Country Road Group (CRG), subsidiary trading conditions in Australia and New Zealand have deteriorated further, with consumer sentiment in Australia at near-record lows, and household savings the weakest since the global financial crisis. In addition, the retail industry has been disproportionately affected by the shift in spending away from goods to services. CRG sales for the current period declined by 5%.
“Country Road was the main disappointment. The business seems to be more exposed to negative operational leverage than some thought. Obviously, the consumer environment is weak there, but I thought the rollout into Myer would protect their top line to some extent. For profits to almost halve off 5% lower sales was a brutal result,” Meintjes said.