Woolworths thinks again as FBH sales drop, online sales soar
JOHANNESBURG – Woolworths is in the process of fixing and repositioning its fashion, beauty and home (FBH) business.
The group said it would refocus the business back to basics and open itself to understanding the needs of its customers more.
Chief executive Roy Bagattini this week said the process would involve a strategy to identify lower hanging fruits in the near term as annual sales declined 10.7 percent due to Covid-19 disruptions.
It said the business recorded a 24.1 percent decline in sales during the second half of the year ended in June, severely impacted by the closure of stores in South Africa.
The unit’s operating profit tumbled 59.5 percent to R683 million, resulting in an operating margin of 5.5 percent.
Online sales, however, grew 41.3 percent in the second half and 35.4 percent for the year.
“I have pointed out that I think we had our strategy wrong and there were question marks over the execution of our strategy,” Bagattini said adding that the focus would be on better understanding the group’s customers.
“We need to truly understand our customers, what they buy, why they buy, how they buy and what solutions they are looking for and let that inform our strategy.
“We have several brands, but they are not distinctive enough and create confusion in a customer’s mind. We are what I call overly assorted, we have too many products but they don’t resonate with the customers.”
Bagattini said Woolies would identify ways to take advantage of growth opportunities for the home business.
“We have not extensively focused on the home business. I believe we are either in it or we are out of it, and we have decided that we are in it and we are going to be a lot more serious in our home business and look at how we can grow that.”
The group turnover was 1.2 percent less at the year ended June compared with a year earlier at R72.2bn. Mergence Investment Managers analyst Lulama Qongqo said the FBH business constituted 17 percent of this financial year’s revenue print. She said Woolies was out of touch with its customer base.
Qongqo said the target market, which is in the high LSM group, meant it had significant online and international competitors that were fighting for the same target market.
“Their biggest problem is that they have increased prices over the years yet the quality has gone in the opposite direction and they strayed from the basic and elegant offering Woolies customers used to love. They said they would fix the latter many times before, but I’m afraid they are likely to remain irrelevant if the quality of their fashion merchandise remains poor relative to what customers expect from Woollies,” Qongqo said.
Bagattini, who was president of the jean manufacturer, Levi Strauss Americas, before taking the reins from Ian Moir in February, said Woolies not only grappled with the economic fallout due to Covid-19 but high unemployment in South Africa and the prospect of the Australian economy going into a recession were challenges going forward.
He said the group’s intention was stronger from the pandemic.
“The board and management team remain resolutely focused on optimising the group’s financial position, liquidity and capital structure, and on repositioning the group for sustainable long-term growth,” Bagattini said.