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The Woolworths fashion mea culpa

The group, until recently SA’s retail darling, blames more of the same for its troubles.

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’s 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.

Going back to basics

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%.

Woolworths CEO Ian Moir. Photographer: Halden Krog/Bloomberg

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 that 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 says, 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 vs R1.7 billion against group operating profit of R5.3 billion. 

“Food is once again saving this business from total collapse,” says Cassie Treurnicht, portfolio manager at Gryphon Asset Management. It had a sales growth of 8.4% and positive volume growth of 5.2% when excluding price inflation.

Market watchers questioned how Woolworths could know its food customers and their needs so well but respond so horribly to their clothing needs.

In food, says Moir, Woolworths has a narrower customer segmentation – the LSM 9-10 consumer – while clothing is a “broader church” with diverse consumers.

“Fashion is more difficult than food. It’s more fickle, seasonal and we have to make a lot more choices. It’s harder to do.”

But Damon Buss, an equity analyst at Electus Fund Managers, isn’t convinced. “Woolworths seems to lack the skills – both strategic and buying – to execute on the plans to ‘fix the fashion offer’,” he says.

The market’s patience for Woolworths to execute strategies that can deliver growth is wearing thin. This is after a R6.9 billion impairment of David Jones – proving that Moir overpaid for the acquisition – knocked the retailer into a loss of R3.5 billion and a 17.7% decline in headline earnings per share to 346.3 cents.

Woolworths shares are down 19.3% to R50.60 (at the time of writting) so far this year. This is more than its immediate food and clothing competitors, including Shoprite (down 3.5%), Pick n Pay (up 4.08%), Massmart (down 18.69%), The Foschini Group (down 6.85%), and Truworths (down 5.66%).  Anthony Rocchi, portfolio manager at Rexsolom Invest, says based on his Woolworths share analysis six months ago, it informed him the share was 20% overvalued. (see graph below).

Source: Rexsolom Invest

“Barring any more nasty surprises, I think its safe to say, today [on Thursday] Woolworths is trading close to fair value,” says Rocchi. “Now that the ugly facts have been laid bare, the company can put it behind them and Ian can get on with what he is actually good at … managing a retailer.” 

 

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Woolworths Clothing is the BlackBerry of fashion houses. It has one of the worst Management teams. Their Strategy and marketing departments are old and tired, so their fashion offerings are old are tired, with sprinklings of poor quality.

“We went too young and fashionable with our womenswear.” Whaaaat? The local brands look disgustingly old-fashioned. If this guy continues heading up Woolies, there is no hope.

I hate David Jones label on my clothes. Is he some Aussie convict or what?

“David Jones was founded in 1838 by David Jones, a Welsh merchant and future politician after he emigrated to Australia, and is the oldest continuously operating department store in the world still trading under its original name.”

From wiki.

That is actually some impressive history!

As a child I grew up knowing that my “best clothes” for church and special outings will be purchased at Woolworths. Why you ask? Quality – Woolworths then only used local factories to stock their chains – it was branded as such – check archives for adverts. Then in the 90’s the Management of Woolworths went “China shopping” and sold sub-sub-standard clothes at HUGELY inflated prices as greed overtook common sense. The final straw on the camel’s back for us was when local factories had to close, thousands lost their jobs and had their lives destroyed. That one decision of “China Shopping” had destroyed lucrative factories in Cape Town, Durban, etc., etc., which, come to think about it had they still been in business today, would’ve created jobs and the brand Woolworths could’ve still stand as “Proudly South Africa”. The wheel has turned and I for one have no sympathy for Woolworth and their shareholders.

And the Chinese invasion has gotten worse. Boycott Chinese junk.

And the “Made in China” clothes are more expensive than their former locally made quality garments.

There was a time when you could walk into Woolworths and get good quality clothing that fits …. now you can’t find anything and the quality is Chinese rubbish!! So if I have noticed it so have many of your customers but the management still follow the same line … errrr duh what’s the problem? And how do you solve it ?? Rather obvious isn’t it!

Exactly. My W ss shirts bought 15 years ago still in good shape with all buttons still on. New stuff is awful and made for midget Chinese with no space under arms or around chest and cut way too short. Shop at H&M now..

I’d love to be a clothing retailer with customers who kept their clothes for 15 years. Not. Hilarious.

Huge investment in AUS driven by senior management who wanted to emigrate from SA and settle there with a good job.

Also, AUS don’t like SA or anything about SA (when last have you heard anyone in AUS stand up to defend or promote SA?)

Moir must simply go and take most of his people with him – not sure who must follow – but sell/write off AUS assets is a good beginning.

S.A. shareholders have paid dearly for Moir’s emigration.

The SA people have spent the maximum credit on their Woolworths card/s, some people have more than one type of Woolworths credit card maxed out. Now they are hardly able to pay off the card debt, but stay at max debt whilst they can only buy food on credit with the money they put in and will spiral out of control soon…

The Australians gave destroyed Edcon and now Woolworths, why do SA boards keep believing RSA does not have the people with skills to run these companies, especially WOMEN?

What is most concerning that the fact that WOMEN are the people who actually do the work in the clothing retailer industry worldwide, yet MEN head-up these business ………. quite disgusting that WOMEN remain undermined.

How obtuse can men be when it gets to female fasion? The David Jones range has a good feel and the fabric is easy to care for and drapes and wears well. But the designs on the dresses are OLD OLD OLD – maroon and navy, all drab. Where the colours are bright, the design is unappealing. So if they think it is too young – well, it’s going to be another blind alley. Going back to the old formula where the clothes were good, but expensive and made in huge quantities won’t work either.
BTW – haven’t they heard either that “60 is the new 40”. Older people look good now till later in life – both men and women.

Woolies clothes look so Communist; drab grays, black, dull colours. Edgars on the other hand specialises in colour, glitz and glam (except the Pta store). When I walk into either store, Edgars is beautiful and bright. Woolies is dull.

As for Edgars in Pta Church Square, whooo! Wow, how did that store get so bad. Light fixtures hanging off the walls, construction buckets placed on the shopping floors and dull lighting.

Get it right, y’all.

It feels that Mr Moir was too emotionally involved with Country Road and couldn’t let go of his previous employer when he came to Woolworths.
The customers were alienated by the entry by the new line from Country Road, and David Jones whose prices were staggering.
Thus creating a feeling that the normal Woolies clothes were too cheap and the DJ and CR too expensive.

Ian Moir is a one man wrecking ball at present.The Australian venture needs time,but their can be no excuses for the poor variety and quality of the local offering.They almost had no competition at one stage,and Moir needs to take the blame for most of what has gone wrong.

Die David Jones hemde het nie eens `n sakkie op nie.
Ek het dit, veral by warm weer, nodig om my pen en selfoon in te sit.

You looking for a khaki one with a blue pocket?

Available at Sentraal Wes in Klerksdorp.

In-store service is shocking or maybe they are not interested in serving people with my complexion. A few months ago I entered Woolies fully intending to buy a pair of pants but the one person who was serving me disappeared and the next one gave me such an attitude that I walked out. So sad that everything of quality is deteriorating while it seems Woolies staff do not care one iota about customers and customer service.

This is what happens when you try to keep up with the Jones’s.

Woolworths is just another word for more expensive.

Woolworths is one of the very few South African high end quality brands.

Wait till David Jones and Elizabeth street is in full swing.

Do some research about the company’s expansion and future plans, the share price is cheap.

I am quite satisfied with the David Jones line. Made mostly from cotton. I try to watch my carbon footprint so fancy fleshy colors are not important to me.

Only one question needs to be asked. So Mr Moir when are you going to fall on your sword???

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