Could Woolworths’s fashion turnaround strategy finally be taking shape?

JSE-listed retailer Woolworths’s turnaround strategy for its fashion, beauty and homeware (FBH) business seems to be gaining traction, with the unit reporting stronger third quarter sales.

Independent retail analyst Chris Gilmour however cautions that “one swallow doesn’t make a summer”.

For Gilmour, although showing signs of a positive turnaround, the FBH business is going to have to perform more consistently to convince the market that it is truly 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 adds: “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 touch 52-week high on profit forecast [Jan 2023]

Double-digit sales

In a trading update published on Thursday, the retailer reported an 11.2% increase in turnover and concession sales on a comparable store basis for the 26 weeks ended December 2022, saying the performance was supported by higher prices and reduced markdown sales during the period.

Even more pleasing is that for the last six weeks of the period – the height of the festive and promotional spending season in the country – the category saw growth of 12%.

The FBH business reported price movement of 10.8% during the period. This, along with its ongoing focus on full-price sales and less markdown sales, contributed positively to its performance.

According to Woolworths, the category’s performance indicates a turnaround strategy that is finally bearing fruit.

Commenting on the group’s performance in the first six months of the 2023 financial year, CEO Roy Bagattini said: “I am very pleased with our performance in the first half, and particularly 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.”


A shield from load shedding

In its update the group reported on the financial impact South Africa’s rolling blackouts are having on its food business.

It says heightened load shedding towards the end of 2022, which has now seeped into 2023, has seen it spend increasingly more on diesel in an effort to maintain the freshness of its produce. Despite its efforts, it says it saw higher levels of food waste during the period.

With state power utility Eskom deep in debt and generating electricity out of a largely old coal fleet, expectations are that power cuts will become a permanent headache for businesses. In a status update on Sunday, Eskom told South Africans that load shedding may be around for at least another two years while the utility tries to get its generation fleet together. 

With that in mind, Gilmour says it is imperative for Woolworths to ensure that the FBH business grows more sustainably to help shield the group from the blackout-related losses the food business may continue to see well into the future.


“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 sooner the group moves away from the David Jones-inspired department store format and starts differentiating its brands and businesses, the sooner it can start growing its businesses more materially.


Anecdotally, we can see glimpses of Woolworths beginning to move in this direction. In the update to market the group noted a reduction of space by 2.2% in the FBH business during the third quarter.

The retailer’s decision to cut down on space forms part of its effort to pursue profitability.

In early 2022, Moneyweb reported on the group’s plans to reduce its FBH floor space to 357 000m2 by June 2023 and even further in 2024 to 354 000m, this from a floor space of 440 000min 2020. At the time, Woolworths was of the view that the aggressive reduction of space would drive higher profitability per square metre. Currently this seems to indeed be the case.

Smaller format stores

In terms of starting to differentiate its businesses and move away from the large format department store presentation as Gilmore suggests, Woolworths has for a while now been opening smaller format stores that focus on highlighting certain parts of its business.

In line with this, smaller Woolworths food stores in smaller shopping centres across the country have become commonplace.

Even newer is the launch of W Edit stores, which are much smaller versions of the department store format that has not worked too well for the retailer.

Source Link

Comments are closed, but trackbacks and pingbacks are open.