Woolworths Holdings is reviewing its South African clothing business and the food division of Australian unit David Jones to respond to fashion trends and stem losses amid a slump in earnings, its chief executive said on Thursday.
Roy Bagattini, who took over as CEO of the fashion and food retailer in February, is on a mission to improve the performance of the David Jones department store chain. His predecessor Ian Moir paid a premium to bulk up in Australia and turn the company into a leading southern hemisphere retailer.
“Although some progress has been made, our David Jones business has simply not transitioned fast enough,” Bagattini told analysts on Thursday during a presentation after Woolworths reported a 65% drop in annual earnings.
Woolworths announced a review of its Australian real estate assets in May, a process that would include restructuring debt.
On Thursday, Bagattini announced a number of new plans, giving investors a peak into his thinking with regards to the Australian business.
While the roll-out of a partnership with BP Garage aimed at capturing convenience shoppers was progressing well, the larger format David Jones food business continues to be loss making, necessitating a review.
At a minimum, Bagattini said he hopes the review will get the business to “a break-even position during the 2022 financial year.”
Woolworths has also started a range of “cost-out” initiatives to take at least 20 million Australian dollars ($14.6 million) of costs out of the Australian businesses on an annualised basis.
The company said it had received several non-binding offers for the sale and leaseback of the remaining real estate of David Jones, which would help the unit reduce borrowing needs and pay down debt.
Woolworths, which also owns the Country Road brand, said it was also reviewing the strategy and execution of its struggling South African fashion, beauty and home business. The goal would be “fixing and repositioning” a division plagued by poor fashion “mistakes” over the past two years, it said.
Bagattini said whilst poor execution was to blame, Woolworths’ challenges lie in strategy, which for too long ignored new young, vibrant and aspiring customers.
“As a business we have not evolved fast enough and that’s left us somewhat behind the curve,” he said.
The review will seek to address relatively long and inflexible lead times – the time it takes to produce clothes – in order to better react to fast moving customer trends, he said.