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Woolworths suffers first annual profit fall in eight years

Aims to counter tough market conditions with structural shake-up.

South African retailer Woolworths Holdings on Thursday posted its first annual profit fall since 2009 and warned of continuing tough trading conditions at home and in Australia.

Recession and political turmoil hit consumer spending in South Africa while Woolworths has faced increased competition in Australia from the likes of H&M and Amazon.

“It’s going to continue to be tough, we are under no illusions about that,” CEO Ian Moir said in a presentation in Cape Town, adding that medium-term targets had been reduced.

“We are in a storm of change, the customer is changing, technology is changing … our markets are very tough places indeed.”

The company’s Johannesburg-listed shares were down 4.6% at 08:11 GMT, against a 1.2% decline for the general retailers index

Woolworths, which sells groceries, food and homeware, said that headline earnings per share — the main gauge of profit in South Africa — fell by 7.6% to 421 cents in the year to June 25. That compared with a consensus forecast of a 6 percent fall in a Reuters poll of 12 analysts.

It declared a final dividend of 180 cents, bringing the total shareholder payout for the year to 313 cents, which was flat on last year.

Clothing and general merchandise sales inched up by 1.4%, but gross profit margins for the division dropped by 48% on higher markdowns and a weak sales environment.

Moir said that margins will continue the downward trend in the medium term.

Woolworths aims to counter the market conditions with a structural shake-up aimed at reducing costs and increasing margins, including moving the headquarters of its David Jones clothing brand to Melbourne from Sydney and strengthening its beauty products offering.

“Our view is you either accept [the change in the market], change your model, change your experience, change your approach for the customer or you will whither and die — and we are not going to whither and die,” Moir said.

In South Africa Woolworths also faces increasing competition from Africa’s biggest grocer Shoprite, which is now targeting wealthier customers as the recession hits lower-income consumers.

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Woolies is in trouble. The company must dismantle its department store business model. Its ancient and out of touch with modern times. The clothing business must be separated into a stand alone business, branded differently and compete with other fashion retailers. The food business must keep the Woolies brand, stand alone and compete with other retailers

Their food business is the ‘locomotive’ that powers the company.They have the best quality meats,veggies,fruits,breads etc,and need to realise their edge in this regard,and act accordingly.

Woolworths is just the next SA business that will get badly burned in Oz. SA businesses underestimate the competitiveness of the Australian economy, and the DJ business was already in a persistent downward spiral for years before Woolies bought them. Hope Woolies can work it out, otherwise they’re looking at serious losses.

I am not surprised at all by these results: Woolworths diversified into some ridiculous markets and forgot their core competency, they failed to spot major shifts in consumer behaviour and entered into an already highly competitive market with a product that wasn’t special. Management should have been focusing their business in the areas where they have a differentiated offering and a notable competitive advantage; namely their food business, and divesting in clothing. Clothing Retail in SA has been too easy for too long in SA, and international operators with real brand equity have finally realised this and capitalised on it, and lets face it, its now too late for our local operators to react with their current brand equity. The retail consumers perception of the local operators offerings is that its pretty much a commodity product and their is no room for charging premium prices – which they had got used to in prior years.

There is going to be a massive disruption in the coming years in SA clothing retail, only the most focused and lean operators with the right brands will survive.

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