Woolworths fights many battles

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Author : Ray Mahlaka for Moneyweb

Staying resilient during uncertain times was once Woolworths’ hallmark, earning it the status of a darling in SA’s retail sector.

Woolworths is now facing many battles: an intensified war with its competitors via aggressive promotions for market share, SA’s ailing economy and the problem of burning cash as a result of the slow turnaround of its Australian business David Jones.

“We are in the midst of a storm of change. The customer is changing and markets are in tough places. But we are not going to wither and die,” Woolworths’ CEO Ian Moir told Moneyweb.

Although Woolworths’ group sales grew by a marginal 3% to R74.3 billion for the year to June 2017, its clothing business underscored the extent of heightened markdowns by its peers in response to low consumer confidence and spending.

Clothing sales advanced by 1.4% and fell by 0.9% on a like-for-like (same store) basis. Excluding price inflation of 6.6%, sales volumes fell by 5.2%. Gross profit margins – a key metric used in the retail sector to measure profitability – declined to 47.9% from 48.3% in 2016.

Moir sees little hope of the clothing segment turning its fortunes around for a while. “Margins will tread down for a long period of time. The next two to three years are going to be tough.”

Woolworths expects clothing margins to grow by 16% to 17% for its full-year 2020.

The recovery hinges on retail basics: a better customer shopping experience and fast response to fashion. On the latter, 80% of its clothing business is ladies wear, and the retailer’s lead time on introducing new fashion is six to eight weeks versus 11 months five years ago.

Woolworths joins its peers Truworths and The Foschini Group in offering a sober outlook for the apparel segment.

“I get the sense that these retailers have been hit more by structural changes such as competition and promotional activity changes than cyclical changes like economic growth and low consumer confidence. Woolworths in its results has come short more on structural changes,” said Alec Abraham, a senior analyst at Sasfin Securities.

The food segment, a mainstay for Woolworths, is the antithesis.

Retail space grew by 4.6%, helping to lift food sales by 8.6% and like-for-like sales by 4.6%. Factoring Woolworths’ price inflation of 8.4%, sales volumes grew by a meagre 0.2% compared with a resilient 2.1% posted by its closest rival Shoprite (SA supermarket sales of 8% and product inflation of 5.9%).

On Tuesday, Shoprite CEO Pieter Engelbrecht unveiled the retailer’s plans to ramp up its exposure to higher-income consumers – a market traditionally conquered by Woolworths.

Read: Shoprite eyes wallets of upmarket consumers

Moir is unfazed, saying Woolworths doesn’t have a monopoly in SA’s premium food space, as Engelbrecht implied. “They [Checkers] have more LSM nine to ten customers than we do, so does Pick n Pay. We just do premium really well,” Moir said. “People have tried to attack our business for a very long time. We are deeply entrenched in quality and value. We have great product developers and technology. It’s a difficult business to be in and we are far from being complacent.”

Arguably, the top priority for Woolworths is turning around its disappointing David Jones business. Since Woolworths completed its ambitious R22 billion acquisition of David Jones and sister retailer Country Road Group (CRG) in 2014 – tipped to turn it into a substantial retailer in the southern hemisphere – both businesses have been in turnaround mode.

Woolworths has sunk about A$284 million (R2.9 billion) between 2016 and 2017 to reposition David Jones and CRG by mainly replacing merchandise and financial systems that track stock availability better.

Woolworths’ push of its home-grown private label brands including Studio W and RE into David Jones stores flopped as the quality and fashionability of merchandise didn’t resonate with Australian shoppers. It will relaunch private label brands in March designed by its local CRG, making the price points affordable and fashion-led.

Its turnaround efforts are starting to bear fruit at CRG, which grew sales by 5.1% while comparable sales fell by 0.4%. David Jones is still the problem child, with total sales up by 1% and a decline of comparable sales by 0.7%. “The CRG performance is encouraging and indicates the new management team [led by ex-Marks and Spencer executive Scott Fyfe since this year] is fixing the business but it still has a long way to go,” said Damon Buss, an equity analyst at Electus Fund Managers.

Woolworths recently introduced a high-end food service into David Jones, opening a flagship Foodhall in Bondi Junction, located in an upmarket eastern suburb of Sydney. The store is similar to Woolworths’ model of offering food and apparel in its SA stores.

Abraham said Moir has successfully converted Woolworths’ brand equity into shareholder value. “I’m confident that he will do the same with David Jones.”

Article sourced from Moneyweb

R10m investment in digital printing to revive local textile industry

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This article originally appeared in Bizcommunity

The arrival of digital textile printing in Cape Town can revive the local clothing and textile manufacturing industry and salvage some of the job opportunities lost to China. Craig Whyte, CEO of digital printing specialists ArtLab, has invested close to R10-million in new printing equipment over the past few years to bring digital textile printing to South Africa.

R10m investment in digital printing to revive local textile industry“We call it reshoring – bringing back some of the manufacturing jobs, which were a staple of Cape Town’s business landscape, from Chinese factories. By offering higher quality, rapid customisation and a broad range of natural and synthetic materials; digital textile printing is also a cost-effective option for brands and retailers, many of whom have trialled the tech over the past year and are now putting in increasingly large orders.”

Digital textile printing has already helped revive Europe’s textile industry. “Large fashion brands, such as Zara, use digital textile printing to design, print and roll out new styles and fashion to their stores quickly, in an environmentally sustainable manner. This allows them to stay on-trend without incurring the significant costs and potential wastage of doing large-volume print runs in China.”

According to the latest research, the global textile market is expected to reach more than $1.2-trillion by 2025.

“Despite coming off a low base of 2% of the total textile market, digital textile printing is set to disrupt the traditional textile industry drastically. Analysts estimate that the global digital textile printing sector will grow by 25% per annum over the coming years, with half of that growth centred in Africa, Latin America and the Middle East.”

Empowering local small businesses

“According to the latest stats, the local industry went from employing 200,000 people in 2002 to a mere 90,000 today. The loss of jobs in this sector has had significant consequences, partly because three out of every four textile and clothing workers are women. For the industry to move from survival into a more consistent growth phase, it needs a shot in the arm. We believe digital textile printing is just that.”

“The effect of the offshoring of Cape Town’s textile and clothing manufacturing industry can clearly be seen in local neighbourhoods. We are based in Woodstock, where much of the industry was traditionally located. Over the past 15 years, we saw factories shut doors and witnessed the effect of these closures on the communities around us. For us, digital textile printing marks a revival of industries related to clothing, upholstery, soft furnishings, and more.

“The new technology gives old artisans and small businesses a cost-effective way to revive their craft and improve their livelihoods. We’re trying to create a platform for the industry – there’s a strong sense of entrepreneurship in what we’re trying to achieve.”

Greener option

Environmental impact has long been a concern in the traditional textile manufacturing industry, with some towns declared disaster areas due to run-off from textile factories.

“In India, water pollution from the run-off from fabric dying factories forced the closure of 30,000 family-owned farms in Tirupur, placing the livelihoods of tens of thousands of people at peril. Digital textile printing has none of the environmental issues associated with traditional pigment dyes, and uses a range of latest-generation technology to ensure minimal ecological impact.

“The secret to reviving the local textile industry lies in a combination of cutting edge technology and close collaboration between the various industry role players. We are inviting key stakeholders in the local textile industry to trial the new technology and witness for themselves the quality of digital printing on a range of natural and synthetic fabrics. Since print runs can start from as low as 1 metre, there’s no barrier to entry for new and existing clothing and textile manufacturers to see how it can speed up their production, unlock new business opportunities and spark a revival of a once-proud local industry,” concludes Whyte.

Economics: the lipstick effect

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Women tend to buy more beauty products during a recession, but that may not apply in these difficult times
By Stafford Thomas for BusinessLive

Consumers go into lockdown mode during periods of economic hardship, slashing their spending on big-ticket items, apparel and even food. But they draw the line when it comes to cutting spending on cosmetics and personal care.

“People may cut back on other things such as clothing, but not on cosmetics,” says Clicks Group CEO David Kneale. “Beauty products remain an affordable luxury.”

That fact is showing in retail sales figures for the three months to May.

Measured in constant 2012 prices, overall retail sales for the period came in 1.5% up compared with the same period in 2016. Bucking the trend, cosmetics, toiletries and pharmaceutical sales were up by a healthy 5%.

The general dealer sector, comprising mainly supermarkets, took heavy strain, limping in with sales up 1.4%. Clothing and footwear retailers’ sales contracted by 1.7%.

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The “lipstick effect” seems to be working in the beauty sector’s favour. Proponents of the theory assert that in tough times women buy more, not fewer, beauty products.

“I am a strong believer in the lipstick effect,” says Kneale.

The lipstick effect was first brought into the spotlight in 2001 by Leonard Lauder, chairman emeritus of US cosmetics giant Estée Lauder, who observed a consistent pattern of rising beauty product sales during recessionary periods dating back to the Great Depression.

Michael ten Hope, CEO of Cavi Brands, which imports brands such as Chanel, Burberry, Van Cleef & Arpels and Hermès, says the lipstick effect held true during the last recession, when GDP growth fell to a low of -6.1% in the first quarter of 2009 and averaged -1.5% for the year.

This time, however, he is not as certain the lipstick effect will save the day for the beauty sector.

“We are still enjoying single-digit sales growth, but it is still too early to say categorically that the lipstick effect is working,” says Ten Hope. “For the first time ever we are seeing demand stuttering.”

Highlighting his concern, Ten Hope says demand began the year on a strong note but slumped in April. “We even saw destocking by retailers,” he notes.

Could it be that, unlike the previous recession, this one comes with a huge overlay of political uncertainty?

“Even consumers in the upper-income LSM9 and LSM10 segments are cautious about spending,” says Ten Hope. “They are nervously watching the sociopolitical horizon.”

Author : Stafford Thomas