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Ian Moir – CEO, Woolworths

Resilient high-income consumers boost Woolies.

HILTON TARRANT: Retailer Woolworths today reporting results for the year to the end of June. Turnover up 23%, headline earnings per share up by 30%, and after adjusting for the extra week you get a figure of 28%. Ian Moir is chief executive of Woolworths. Ian a lot is made of the typical Woolworths customer, a resilient higher income shopper. Given the slowdown in South Africa have you emerged entirely unscathed or has there been an impact?

IAN MOIR: I wouldn’t say we’re entirely unscathed. Our clothing business was a little slower in the second half, but how much of that was due to a slowdown, how much was due to a winter that never arrived, we’ll never really know. If I look at our food business, then clearly we grew in the second half faster than we grew in the first half, 15%. But we’ve also been doing a lot of good things and our results are not entirely just due to the relative resilience of the customer versus the lower end in market, but there is no doubt we’ve been significantly assisted by that.

HILTON TARRANT: You made a lot about the idea of scale in this morning’s presentation, how important is it for you to get to scale and how far are you away from that?

IAN MOIR: A big step forward for us was the acquisition of Witchery in Australia. If you look at that business in the next 18 months is going to be a $1bn business. It’s a natural rand hedge for us, it’s a material sized business, it’s very profitable, the acquisition has gone well almost from the word go and its now 16% of our profit, so its material. But increasingly what we’re recognising, is when you put the Woollies clothing business and the Country Road and Group business together, it’s a big business for the Southern hemisphere. And we’re now negotiating with our agents and negotiating with our suppliers as that single entity, and that’s forcing better relationships, stronger relationships, lower costs for goods and obviously we can pass that on to our customers and hopefully to our bottom line.

HILTON TARRANT: Do you see increased competition from northern hemisphere companies – I think of companies like Zara who are already in the country, H&M will be here soon and Uniqlo is probably not too far behind that?

IAN MOIR: There’s no doubt that the competitive environment will change. If I have a look at Australia and what’s happened over the last two or three years there, that’s exactly what’s happened. far more international retailers, most of the growth that’s taken place in the Australian marketplace, other than Country Road, is actually going to these international guys. By the end of the day some of them will survive and some of them wont. Many of them are still northern hemisphere, so that makes it very tough to do in both hemispheres because of the contra-seasonality. But it really has upped the game in South Africa and my view is that if you can’t compete you shouldn’t be there, and you’ve got to make sure that you’re giving the customer what they want in terms of trend and fashionability and price.

HILTON TARRANT: You’ve been doing a lot behind the scenes and in getting clothes onto shelves quicker from design to on sale, how quick is that process now?

IAN MOIR: It varies across the business but we’ve got about 60% of our business on less than 90 days when before we were looking at the entire business on 11 months plus. So much faster to market, we’re closer to trends, we’re bringing new…, new colours, new prints to the marketplace far quicker than we ever did. We’re much more conscious of where world trend and world fashion is heading, we can get it onto our shelves quicker and the other thing we can do is actually trade in season now. We’ve got a fair amount of our business that we can turn on five or seven weeks and that allows you to take what’s happening in the season and then get back into that which is working and get out of that which isn’t. So it really has made a big difference to the business but every competitive clothing business has to do that these days.

HILTON TARRANT: Five to seven weeks, is that as fast as you can get?

IAN MOIR: Yes you can’t get it much quicker than that and that’s mainly local and mainly from Mauritius.

HILTON TARRANT: The Country Road and Trenery stores in the South African market, are they trading strongly?

IAN MOIR: They’re trading exceptionally well, double digit growth and growth in those brands, so strong, and they’ve grown materially. They’re about 25% of the Country Road profit if I take the Country Road business excluding Witchery, that’s coming now from South Africa and we’ll be launching our new brands Witchery and Mimco – we’ll be bringing them to South Africa in March next year.

HILTON TARRANT: How is trading in Australia?

IAN MOIR: Trading in Australia is really good. Obviously the acquisition allowed us to grow our top line by 68% but if you take that acquisition out and just look at the Country Road business as was, that traded 12% up in a year in a market where the market growth was only about 2%.

HILTON TARRANT: You’ve spoken about getting the clothing business to scale, is the food business at scale here in South Africa?

IAN MOIR: We’re far from scale but we’re doing our best to get there. We’re obviously a reasonably sized food business, but we are no ShopRite and if you look at what we’re doing by introducing more of a catalogue, introducing bigger stores, more bulk, we’re introducing be, more competitive pricing. We’re introducing more promotional activity and we’re juxtaposing that with what Woollies has always been great at, great fresh product, really innovative prepared foods, the best meat in the marketplace, then I think we can really build that foods business to a much bigger business than it is today.

HILTON TARRANT: A lot of that promotional activity linked to your WRewards programme. How many customers are you tracking?

IAN MOIR: We’ve got three million customers on that programme right now, it’s about 67% of our sales is tracked on that card. Its making a big difference, customers are loving it, we’re much more informed about who they are, what they want, what their expectations are, we can drive, cross shop, it’s made a real difference to the business.

HILTON TARRANT: And I guess learning about what you can do with all that data all the time.

IAN MOIR: That’s a part of that data – it really has made a difference. We can actually use propensity modelling to understand what the next most likely category is, so we can incentivise them into that category, increase the cross sell, so we’ll get more of our customers coming in more often, buying more items and expanding into more categories.

HILTON TARRANT: Are you doing anything different with your financial services business, or is that just more of the same?

IAN MOIR: The financial services business, the guy that runs that, Doug Walker has done a great job. He and his team have really changed the face of that business. We’ve got the best growth this year we’ve had in a very long time. We’ve got nearly 16% growth and we’ve done a lot of system work, a lot of process work, so now we’re in stores. People can go into a store, we’ve got kiosks within the store and they can get instant credit within 15 minutes. It took seven weeks before and most of the people that applied actually gave up, so a lot of change. We’ve got credit limit increases at point of sale, so if you look at our business, it’s very much focused on the quality of the debt rather than the quantity. We’ve got 16% growth but we’ve only got 2% impairment. So it’s a good and profitable business and the relationship with Absa works really well.

HILTON TARRANT: One of the moves you made, a big bold move just outside of this reporting period, completely overhauled website, big digital effort there across smartphones as well, why was it important for Woolworths to make that move?

IAN MOIR: It’s the future – we’re not going to get a return on it for the next couple of years, but the world is changing. Four years ago when I left Australia online didn’t really exist, it’s now 7% of total retail in Australia. Our online business in Country Road alone is $50mn – it will come to South Africa and we’ve got to invest now so we’ll re-platform, we’ll re-launch the site, we’ve brought in the best resources to make sure that when the tipping point comes and people move into online and really see the online environment as a viable channel, we’ll be ready for it.

HILTON TARRANT: How far behind are we in South Africa, are we two years behind, are we five years behind?

IAN MOIR: If I’m guessing , and nobody knows – if you’d asked me four years ago in Australia, I’d probably would have given you a different answer to the actual, to reality but I would guess three to five years, but who knows.

HILTON TARRANT: What about the rest of the continent, have you got it quite right there, or still some work to do?

IAN MOIR: You’ve always got more work to do in the business, you never get it 100% right and certainly Africa is tougher than most. One of the issues that anybody operating in Africa knows, there’s no such thing as Africa. Every country is different, every country is either harder or easier, with different customers, different processes, different requirements, different duties and some of the countries we’re getting it more right than others. But we’re certainly learning about how to understand the customer better, how to profile our stores better, allocate our stock better and get the flow of goods better, get our duties down and our prices more competitive. So that African business – it will grow, it’s going to be… we reckon about R1bn in the coming year at retail value, and we can build it from there.

HILTON TARRANT: We’ve seen a scramble northwards by many South African retailers, obviously a lot coming from the north as well, from Europe southwards. How far north are you looking to go?

IAN MOIR: We really need to focus on southern hemisphere because we’re a southern hemisphere clothing business. To try and go northern hemisphere – very tough. We’re in Nigeria, but it’s very tough, compared to Botswana, Namibia, and Kenya even, much harder. So as a business we really need to focus on sub-Saharan and be a southern hemisphere business and not try to be all things to all men.

HILTON TARRANT: Just to close off with, your outlook for the year ahead?

IAN MOIR: For the year, I think it is going to get tougher, I’m with you on that one. We’re preparing the business for that but we do believe the customer remains resilient. We’re not seeing any change in the spending patterns, but we’re cautious.

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