Woolworths: Moir talks tough about jacking up their ideas
CEO reckons the turnaround is happening in everything from local fashion and food to Australia
It’s never fun when your game-changing acquisition turns into a money-sucking nightmare, as in the case of Woolworths’ R22bn David Jones purchase. But it’s not just trouble Down Under that the company, once regarded as the cream of South African retailers, faces. Woolworths’ local fashion fare has been off-target and is losing profit, and there are fears that its stalwart food business may have to give up margin as its well-heeled customers give up luxuries in the face of a worsening economy. CEO Ian Moir answers the tough questions:
Do you know for sure what went wrong with your SA fashion and can you fix it?
Yes, we really do. The figures never lie and it was very clear our biggest problem lay with the sub-brand Edition. It was 30% of our women’s offer and it traded at 15% down on the prior year. We got it wrong. We made it too big, it should never have been 30% and then within it, we went way too fashionable, way too young.
When you’re able to clearly understand what you got wrong it’s easier to fix, so we’ve been in the process of right-sizing that as a sub-brand, getting it back to what Woolies should be famous for, really focusing on our 35-50-year-old customer and going back to basics.If you look at our offer at the moment, we’ve got much better key items, our basics in the business are much better made, they’re more appropriate for that customer. And the Edition brand is much more commercial, much less young than it was. We’ve only just launched a new season so it’s early days, but we are beginning to see improvements. It’s going to take time to get the business back.
Has 35-50 always been your customer and are they the customers you want?
Well, we’re a broad church in clothing and if you use the old LSM definitions we go from LSM 6 to 10, whereas in foods we’re really 9-10 and predominantly 10. If you look at the mix of the age profile of our customers, 35-50 is really our bullseye. We are getting younger over time as the demographic changes but there is no doubt that we took the balance of our business far too young.
As for David Jones, an Australian economist recently wrote: “Australians don’t suddenly hate department stores, it’s that they love cheap things,” arguing that Australian shoppers have become “Aldi-fied” (German low-cost brand Aldi). What do you think, because DJ is clearly at the opposite end of the spectrum to Aldi?
I don’t think that’s right. I think the market is polarised and both ends are doing well, so the luxury end of the market is doing better. Within David Jones it’s the Guccis, the Louis Vuittons that we’re doing exceptional business in.
What we’re seeking to do is differentiate ourselves more. I don’t think you can seek to be all things within that market so we want to be a department store with more exclusive product, with better brands. We’re investing $400m in one store in Sydney – we’re spending $200m but our partners are spending $200m, and it’s partners like Chanel and Gucci and LVMH that are doing that with us.Also understand that we’ve got a big Asian and tourist following in that marketplace, so yes, Aldi are doing well but not everyone wants to be Aldified. People want the top end as well.
Which suggests the middle market is where you shouldn’t be playing …
It is the toughest place to be, there’s no doubt about that. That’s where the greatest strain is taken.
Is there anything that would make you throw in the towel at David Jones? You’ve already written off almost R7bn of the R22bn purchase ...
David Jones is here to stay. It’s part of our business now and we’ve spent a lot of money replacing systems and processes and people and moving head office. We’re not going to walk away from it now: we’re just beginning to see sales improve. We’ve gone from minus 5% in the first half to plus 2% in the second half to around 4% up for the first couple of months. It’s about getting that business right and taking market share.
What about back home in Woolworths Food? There’s a suggestion that you might have to start curbing prices to retain customers, especially with Checkers snapping at your heels. Or can you get away with charging what you do?
We don’t overcharge. We’re conscious that we must remain price competitive. We challenge 500 items every week in terms of price against our competition. And that’s why every month for the past eight years we’ve taken market share.
People talk about Checkers coming after us. Checkers have always operated in exactly the same segment that we operate in. They’ve always been bigger than we are in the LSM 8-10, so there’s nothing new in this competition.If I look at the very latest market share figures we’ve got, we continue to take market share and I hope that doesn’t sound complacent – that’s not what I’m trying to be at all. I don’t think that the team is in the least bit complacent, they’re very competitive but they’re doing a good job.
Checkers have talked about attacking our prepared market: we built that up over 30 years. We have exclusive arrangements with our supply base, we’ve invested long term in product development, it’s a managed business that we own a significant share in and we have the DNA, the technologies, the expertise. Trying to get that right overnight isn’t easy.
Australia is a massive headache, in SA there’s no sign of recovery – are you going to stick around?
The board are clear that they want me to continue with the business, I’ve signed an extension of my contract, I’m not going anywhere. I’m actually feeling more energised than I have done for a long time. I think myself and my team are the right people to effect a turnaround of the business. So, I’m here to stay I’m afraid.