Blanket of gloom over retail
bdlive.co.za - Nov 14th 2016, 10:01
A grim trading update from Woolworths on Friday dealt a hefty blow to already weak investor sentiment towards the retail sector.
The sector has been knocked by a series of grim updates and results in recent weeks. Woolworths’ update stands out as it provides troubling evidence that the tough trading conditions are now affecting food sales as well as nonfood sales.
On Friday, analysts said investors would also be disappointed that the Australian business, which provides about 40% of group earnings, was unable to act as a counter to the difficult South African conditions.
The update saw the share price head back to levels not seen since before the R10bn rights issue in 2014 at the time of the R23.5bn David Jones acquisition. On Friday Woolworths closed at R67.81 following the disappointing update for the first 19 weeks of financial 2016.
Analysts said although the update was disappointing, it was not unexpected. "This has been a long time coming," said Sasfin analyst Alec Abraham. "Given the pressure consumers are under, it’s actually been surprising the retail sector has held up so well until now."
Abraham said the slump in the sector was inevitable given that SA had virtually no economic growth, no job creation and little in the way of pay increases. "Up to now, nonfood retail sales have held up reasonably well because food retailers were able to keep their prices low, so there was some diversion from food budgets to non-food," said Abraham.
Sales volumes have flatlined across the group. Any hopes that the expensive Australian acquisition would counter local weakness were dashed by the news that David Jones had only managed a 2.2% increase in sales after adding 3.4% to its retail space. Sales in comparable stores edged up 0.6%.
Things were even grimmer at Country Road where sales declined by 2.8%; the drop would have been closer to 5% had retail space not been increased by 2%.
At this stage, it seems shareholders will have to look to a weaker rand for any earnings kicker from Woolworths’ expensive Australian purchase.
Back home things were just as grim with inflation accounting for most of the reported increase in sales in both food and clothing. Woolworths Clothing and General Merchandise only achieved a 2% sales increase despite an inflation rate of 7% and 2.9% additional space. Retail analyst Syd Vianello echoed the concerns of many analysts describing the group’s pricing strategy as "perplexing, to say the least". It has allowed other retailers such as H&M and Cotton On to grab an unexpectedly large chunk of the local market.
At Woolworths Food, where prices were up 9.2% and there was an additional 8.3% space, sales increased by only 9.1%.
Woolworths’ food inflation was in line with the 7.2% reported by Shoprite. Abraham said this was more than double the rate seen in the past three years and was likely to put a damper on nonfood spending.
The update follows a better than expected 12 months to June when Woolworths beat expectations and most of its peers.
Woolworths group CEO Ian Moir did warn shareholders of tougher times ahead in his year-end statement. The Australian and South African markets were becoming more competitive with the arrival of northern hemisphere retailers and growing promotional activity. However, he described the group’s mid-to-upper-income customers as "resilient" and was confident the group’s businesses "are well-positioned despite the prevailing conditions".
Just hours before Woolworths’ update TFG had reported a 5.7% increase in earnings for the six months to September compared with the previous year’s 16.6% hike. CEO Doug Murray described the trading conditions as the toughest they’ve ever been for retail.
A week earlier, investors knocked Truworths’ share price following an update revealing sales were down 1% in its first 18 trading weeks of financial 2017.
© Business Live MMXVI
Checkers brings world-class retail to Constantia with new flagship store
27/11/2019 - 13:01
Checkers has opened the doors to its state-of-the-art 2 330 m² flagship supermarket at the Constantia Emporium as the retailer continues to take innovation to new heights.
Woolworths carves out market share in SA
27/11/2019 - 10:11
In Australia, David Jones's sales declined 2.1%, with the company saying a store refurbishment contributed to the decline.
Push and pull strategies work together to keep consumers coming back for more
26/11/2019 - 10:20
The retail sector is under increasing pressure as consumers have shrinking disposable income in a strained economy. Maintaining share of wallet is critical. Relying solely on a push route to market strategy from manufacturers into retailers is not enough to get consumers buying products. A pull strategy needs to coexist with the push to drive brand consumption. Integrating these strategies requires intelligent and insightful decision-making. This, in turn, requires data generated through smart technology which provides line of sight across the value chain from manufacturer to distribution, retailer to the consumer.
Exclusive leases must fall: Commission cracks whip on Shoprite, Pick n pay, Spar, Woolies
26/11/2019 - 09:57
The Competition Commission Inquiry into Grocery Retail, published on Monday, called for an end to the exclusive leases negotiated by national retail chains in all shopping malls across the country in a bid to open up access to markets for smaller players.
Today’s customers are loyal to speed and convenience, not brands
25/11/2019 - 11:15
Consumer expectations are rapidly shifting as technologies such as mobile, geolocation, social media and increasingly, Internet of Things devices and wearables, connect people to a world of easily accessible information and convenient services. With the ability to browse, compare and order with a few swipes and taps, consumers are becoming trained to value convenience and service above nearly anything else.