JSE-listed retailer Woolworths’s turnaround strategy for its fashion, magnificence and homeware (FBH) enterprise appears to be gaining traction, with the unit reporting stronger third quarter gross sales.
Independent retail analyst Chris Gilmour nevertheless cautions that “one swallow doesn’t make a summer”.
For Gilmour, though displaying indicators of a constructive turnaround, the FBH enterprise goes to must carry out extra persistently to persuade the market that it’s actually out of the woods.
“Woolies goes through these phases every so often. They appear to get it right and only six months to a year later come crashing down to earth again.”
He provides: “I want to see out of Woolies FBH a sustained improvement. This is good – I am taking nothing away from it – however, it needs to be sustained for quite a long period of time before I would come out and say this is definitely a change or turnaround.”
Read: Woolworths shares contact 52-week excessive on revenue forecast [Jan 2023]
Double-digit gross sales
In a buying and selling replace printed on Thursday, the retailer reported an 11.2% enhance in turnover and concession gross sales on a comparable retailer foundation for the 26 weeks ended December 2022, saying the efficiency was supported by increased costs and lowered markdown gross sales throughout the interval.
Even extra pleasing is that for the final six weeks of the interval – the peak of the festive and promotional spending season within the nation – the class noticed development of 12%.
The FBH enterprise reported worth motion of 10.8% throughout the interval. This, together with its ongoing give attention to full-price gross sales and fewer markdown gross sales, contributed positively to its efficiency.
According to Woolworths, the class’s efficiency signifies a turnaround strategy that’s finally bearing fruit.
Commenting on the group’s efficiency within the first six months of the 2023 monetary 12 months, CEO Roy Bagattini mentioned: “I’m more than happy with our efficiency within the first half, and significantly over the festive season.
“The successful execution of our strategies is not only enhancing our business value today, but also building strategic resilience for tomorrow.”
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A defend from load shedding
In its replace the group reported on the monetary affect South Africa’s rolling blackouts are having on its meals enterprise.
It says heightened load shedding in direction of the tip of 2022, which has now seeped into 2023, has seen it spend more and more extra on diesel in an effort to take care of the freshness of its produce. Despite its efforts, it says it noticed increased ranges of meals waste throughout the interval.
With state energy utility Eskom deep in debt and producing electrical energy out of a largely previous coal fleet, expectations are that energy cuts will develop into a everlasting headache for companies. In a standing replace on Sunday, Eskom instructed South Africans that load shedding could be round for at the very least one other two years whereas the utility tries to get its technology fleet collectively.
With that in thoughts, Gilmour says it’s crucial for Woolworths to make sure that the FBH enterprise grows extra sustainably to assist defend the group from the blackout-related losses the meals enterprise could proceed to see nicely into the long run.
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“From a retailer’s perspective [the impact of load shedding] is really bad and particularly a retailer that relies on fresh food the way Woolies does. So I think it’s imperative that they really get the FBH side right,” says Gilmour.
“FBH is not a nice to have, they have got to get this right. There is no room for complacency in any part of the business.”
He says the earlier the group strikes away from the David Jones-inspired division retailer format and begins differentiating its manufacturers and companies, the earlier it will probably begin rising its companies extra materially.
Glimpses
Anecdotally, we will see glimpses of Woolworths starting to maneuver on this course. In the replace to market the group famous a discount of house by 2.2% within the FBH enterprise throughout the third quarter.
The retailer’s choice to chop down on house varieties a part of its effort to pursue profitability.
In early 2022, Moneyweb reported on the group’s plans to scale back its FBH flooring house to 357 000m2 by June 2023 and even additional in 2024 to 354 000m2 , this from a flooring house of 440 000m2 in 2020. At the time, Woolworths was of the view that the aggressive discount of house would drive increased profitability per sq. metre. Currently this appears to certainly be the case.
Smaller format shops
In phrases of beginning to differentiate its companies and transfer away from the big format division retailer presentation as Gilmore suggests, Woolworths has for some time now been opening smaller format shops that concentrate on highlighting sure components of its enterprise.
In line with this, smaller Woolworths meals shops in smaller procuring centres throughout the nation have develop into commonplace.
Even newer is the launch of W Edit shops, that are a lot smaller variations of the division retailer format that has not labored too nicely for the retailer.