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Rating Ian Moir’s decade at Woolies

It isn’t all about David Jones. Except it is …
For the past year Moir had been dividing his time between his group CEO duties and running David Jones as acting CEO. Image: Supplied

In the end, Woolworths Holdings CEO Ian Moir will be judged on a single deal: the R21.4 billion acquisition of Australian department store chain David Jones in 2014.

That investment has been impaired by nearly R12 billion to date, and the overhaul of David Jones (and the R2 billion-plus refurbishment of its flagship Elizabeth Street store in Sydney) is not yet complete. Even adjusting for one-offs, comparable sales are still in decline

But Moir’s tenure (he has been in the top job since November 2010 and was the clear successor to Simon Susman since being appointed to the board in February 2010) was about more than just one disastrous deal down under …

Food

Moir can surely point to the building of a large food business at Woolworths in South Africa as his biggest success.

In FY2009 (prior to him taking the top job), Woolworths Food generated R11.1 billion in revenue through 129 standalone stores. Last year, this number was R32.3 billion from a total of 340 stores.

The food business, albeit at lower margins, has been resilient throughout economic climates. Price perception has improved (on some essential lines, Woolies is cheaper than rivals), its mammoth ‘The Market’ stores are destinations with experiential retail at the centre, and its convenience/concessions strategy continues to deliver.

In many ways, though, Moir’s ambition has been achieved. This is a problem in itself as it is not clear what comes next for the food business.

The popular ‘Eat in for 4’ promotion (then for R100) was showcased a decade ago. Fast forward and Woolies is still plugging away at the same promotional strategy.

Fashion, beauty and home

Until recent years, this was the engine of the group. But a series of serious missteps in the last three or four years has seen sales slip and profits drop even further. Operating margins, once the envy of the entire industry (>17%), are now being guided to “above 14%” in the medium term. Last year, it was just 12.1%.

Moir has had to admit to “poor execution in clothing” more than once. This was particularly pronounced in womenswear in 2018. He told Moneyweb at the time:  “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.”

It had to get back to basics, a process it is still busy with.

The rollout of the David Jones private label in South Africa to replace what you would recognise as Woolworths’s ‘classic’ range fell completely flat. It rolled this back in late 2018. 

One positive from the fashion business was the move the group made to buy back its franchise stores in South Africa in 2010. This gave Woolies complete control of the consistency of customer experience as well as margin. It is hard to believe now that the group at one stage allowed franchises to operate stores.

Africa

There was never a coherent strategy for the group’s operations in Africa. The segment it targets (upper middle market) is comparatively tiny on the rest of the continent. It quit Nigeria in 2013 and exited Ghana last year. Whether or not it should even be active in many of these sub-scale markets remains an unanswered question.

e-commerce

The distractions elsewhere in the group means the South African business is running an e-commerce platform that trails those of rivals.

Online represents 20.3% of Country Road Group’s total sales, while at David Jones that figure is 7.7%. It doesn’t disclose local figures, just that these increased by 40% (fashion, beauty, home) and 21% (food) last year. These are off very small bases, however. To suggest that online comprises even 2% of South African sales would likely be a stretch. And Woolworths, Country Road and David Jones aren’t just facing competition from traditional rivals; online fashion retail is increasingly chipping away at bricks and mortar sales, and global (traditional) rivals have invested heavily in this space.

There are serious questions to be asked about Woolworths’ omni-channel strategy across the group.

Country Road Group

Taking out the minorities was a costly exercise after Aussie billionaire Solomon Lew ensured a huge premium (A$17 a share versus the market price of A$4) for his 12% of the retailer in exchange for support of the David Jones transaction.

Moir cannot take credit for buying Country Road Group (CRG), but the successful rollout of standalone and stores-within-stores of Country Road, Trenery, Witchery and Mimco in South Africa came under his watch.

The ‘unification’ of the CRG and David Jones head offices into a single Australian corporate structure has been disruptive to say the least.

A year ago, it was rocked by a number of high profile resignations in the region, including that of David Jones CEO David Thomas, and two Australasian board members.

Read: The last thing Woolies needs right now…

From that point, Moir has been dividing his time between group CEO duties and running David Jones as acting CEO. This was clearly an untenable situation.

David Jones

On paper, the deal seemed a doozy.

Core was the attraction of scaling up to become a “leading southern hemisphere fashion retailer”. Faced with increased competition in South Africa and Australia from northern hemisphere retailers like H&M, Zara and Topshop, it had to do something.

The problem was the quality of the asset it bought.

Australia might’ve been the correct market to double down on, but David Jones was arguably just too broken (and too irrelevant?) to turn around. And it has way too much trading space.

On paper, the group saw six “value creation initiatives” that would deliver R1.4 billion per year within five years. The reality turned out rather different.

It expected an earnings before interest and taxes (Ebit) impact of between A$70 million and A$80 million (R800 million) from the introduction of Woolworths private label brands such as RE:, Studio W, and JT One.

To an Australian shopper, these were completely unfamiliar. The strategy flopped.

Growing concessions of brands from Country Road Group will do more for CRG than David Jones, but even here there are limitations. Until September, those were not exclusive to David Jones.

The only value unlock has been on the optimisation of the chain’s sprawling real estate portfolio. It is not clear whether Woolworths is even pursuing a group sourcing strategy (which was expected to boost Ebit by A$10 million and A$20 million a year).

Moir cannot only be rated on the acquisition of David Jones, except he will be.

The distractions caused by the acquisition have damaged the group over the last five years, thankfully not irreparably. And David Jones will continue to weigh on new boss Roy Bagattini until it is fixed or sold, as will the group’s R14.4 billion in debt (nearly 10 times the just R1.5 billion in debt it had in FY2009). That tells a story of its own.

 

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I remember seeing years ago that this guy was commuting from Australia to SA to do his job. He had other plans buying David Jones but it did not work. He can now join his family in Oz. Bye!!!

The Woolies equivalent of the lost years under Zuma

Is it not a fact that the real reason for buying David Jones is to squirrel money out of the country and for management to relocate, taking their wealth with them?
Wasn’t this a reason for Old mutual to do the same twenty years ago when they relocated to London?

He costed Woolies more than most people may realise in my opinion. The Shoprite group’s launch of Checkers Hyper stores are going to be proper competition for Woolies food. Woolies didn’t focus much on preparing to defend their advantage in RSA and/or strengthening that further, instead they focused on making a stuff-up in Australia.

“That investment has been “impaired” by nearly R12 billion to date..” Why have financial writers and company reports started using “impaired” instead of “lost”? Do they think that we don’t understand that the company/ investment lost money over a period? It’s not a euphamism, it’s a fudge.

And Mr Moir was outplayed by Solomon Lew who had a controlling interest in David Jones and ended up paying far more than assets were worth.

Locally, they misjudged the fashion trends and the spending capacity of South Africans. Simple as that.

We’re still customers though for their food range which is well-priced and excellent quality.

Impairment of an asset is accounting treatment, nothing more. If the value of the asset is deemed to have increased in future, the impairment (or a part thereof) will be unwound. The money is, technically, not lost forever.

Accounting methods have also changed in the last decade or so … to confuse the investor even more I think. Hoping that you will regain lost capital is just another fudge on the balance sheet. How much have Eskom assets been “impaired” and when are they likely to “increase in value in the future”?

The optimum term being “technically”.

Wrong. Impairment is a write down of investment value and an admission that the price paid for such investment was way over the correct valuation of the investment.

Woolies should have taken the pain all in one go and impaired the investment fully; they are after all, worthless.

More a case of an incompetent board that was lead by the nose! This reflects again on the shareholders that allowed it. There was actually no strategy and just a matter of pushing business around whilst shareholders money was taken by executive and board just keep sleeping. This is applicable to many SA companies where a gang of old boys divide shareholders money between themselves!

“Faced with increased competition ………, it had to do something”!!
I disagree , if you know your business and where it is in the cycle , it can pay to sit it out ,”stick to your knitting” and watch the competition bleed and pay your school fees! To impair half the purchase price , having paid people top dollar to do the due diligence- something wrong!

Nice article Hilton, although perhaps too forgiving on Mr Moir..

End of comments.

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