Woolworths to target growing market share

"We will be able to create more on-trend products loading into our stores on a more regular basis at much better prices ... by the creation of a large scale southern hemisphere retailer that is able to have systems and processes and economies of scale‚" Woolworths CEO Ian Moir said last week.

(Attribution: Jeff Attaway, via Wikimedia Commons)

"The deal is an opportunity to build (more) market share and to take market share in South Africa as well as develop the Australian market and turnaround the David Jones business. We have been taking market share on a three-‚ six-and 12-month basis and that is up to the end of May and what the deal is going to do is allow us to accelerate this over the next couple of years and take more serious share from our competitors in South Africa."

In retail‚ the bigger you are‚ the greater your buying power and the quicker your stock turnaround. Never before has this been more necessary‚ with pioneers of fast-fashion like Zara‚ Topshop and H&M growing their presence in both South Africa and Australia.

Quicker to market

Their billion-dollar businesses are built on responsiveness - dropping the latest catwalk-inspired clothing through agility in supply chain‚ chop-chop.

Woolworths has been working on its speed to market for a number of years. Its merchandise cycle is quicker than it ever was. The group can now get to the market in just five to seven weeks with more than 30% of its goods‚ where previously it took more than 11 months. The sharpening of product technology‚ technical buying skills‚ ranging‚ trending and design has seen its clothing position strengthen against rivals Truworths‚ Foschini Group and Edgars.

The buyout of Witchery Group in 2012 bolstered its quick response aspirations but the R23.3bn acquisition of David Jones and full ownership of Country Road‚ Australia's third-largest apparel retailer has given Woolworths an even greater edge: a single sourcing approach with combined volumes.

Well positioned

Sasfin Securities senior equity analyst Alec Abraham says Woolworths is already well positioned amid the broader slowdown in consumer spending. "If customers want to buy down‚ there is enough of a range for them to buy down and stay at Woolworths so they won't have to leave as is the case for Foschini or Truworths‚ where you actually have to go to a different store because they don't have a broad ambit of price ranges like you do at Woolworths."

Apart from building its fashion creditability‚ Woolworths is set to revive the David Jones business‚ where profits have declined over the past three years. The business is riddled with inefficiencies‚ in a market where online shopping is gaining traction over brick and mortar outlets and the department store concept is losing vogue.

Underperforming brands will be stripped out and replaced with Woolworths labels like Studio W‚ JT One and RE: as the group grows private label contribution. Chasing online shopping more aggressively will also be a goal‚ as will a better loyalty programme.

Drama

"It's a big exercise. Our shareholders have put a lot of faith and support in us now we have got to deliver‚" Moir says.

The deal‚ South Africa's largest retail tie-up‚ will result in the group's Australian revenue growing from 20% of total revenue in the first half of this year to about 43%.Woolworths has no plans to list on the Australian bourse.

Like any great deal‚ this one was not devoid of drama: long-time Woolworths' bête noire Solomon Lew whose antics of baiting a 9.89% stake in David Jones in a bid to stymie the takeover and extract a massive premium for his minority stake in Country Road.

"I'm actually pleased that he did because at the end of the day‚ we have a win-win situation - a wholly owned subsidiary in Country Road that will allow us to do things so much more quickly and so much more easily‚" Moir says.

When asked if this was the end of the road for Woolworths and Solomon Lew‚ Moir said: "From your lips to God's ears."