Clothing and food retailer Woolworths is looking to bolster sales in the struggling Australian unit by adding the Balmain brand to its offerings.
This week, the edgy French brand announced it had partnered with Woolworths-owned department store David Jones to bring its women's wear range to shoppers in Melbourne and Sydney - without mentioning how much the partnership deal was worth. Shoes and bags would also be introduced over the coming months.
Balmain, a high-end fashion house, has previously partnered with Swedish retailer H&M to house some of its products for a limited period.
The Woolworths brand has struggled to woo customers in the Australian market and has subsequently seen poor financial results coming from that territory. Although it reported that the David Jones stores contributed about 22% to revenue, in rand terms, the division declined 1% to R15bn.
Since then the company has been on a mission to advance and develop its market share in the highly competitive Australian market. The management continues to invest in David Jones stores. An equity analyst at Vele Asset Managers, Matthew Zunckel, viewed the move as a net positive given the respect commanded by the Balmain brand. He said the agreement could also help to stimulate sales growth, which he said was sorely needed in the declining department store industry.
"Management appear to be taking an all-or-nothing approach and are determined to turn the business around," Zunckel said.
"Whether the facts support the potential for David Jones to succeed long-term or [whether] management just refuse to admit they were wrong in the acquisition, is another question entirely," he said.
However, an equity analyst at Gryphon Asset Management, Casparus Treurnicht, said Woolworths was tugging on strings.
"They are acting like a wounded animal and making desperate moves to turn the business around," he said.
The worst strategy in retail was to bring in foreign brands that the retailer had had no previous experience with and that would require spending in order to market and attract sales, he said. Treurnicht said that those foreign brands would more likely than not compete with existing brands and cannibalise them, so a back-to-basics approach was necessary.
Like many other local retailers, the Woolworths share price has not performed well. In 2017, it declined 8.04% to end the year at R65.31 at the close. The share price dropped 1.98% on Wednesday to R64.36.
"Only time will tell whether the price tag, margin and sales will contribute positively to David Jones. I am sceptical," Treurnicht said.
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