JOHANNESBURG – South African retailer Woolworths Holdings intends to spend more on its shops to fend off competition and boost earnings after posting its first annual profit fall since 2009.
A combination of a recession and political turmoil have eroded consumer spending power in South Africa and Woolworths is facing tougher competition in Australia from the likes of H&M, and new entrant Amazon and Shoprite.
Woolworths plans to spend 2.1 billion rand ($159 million) in South Africa in 2018 and $250 million in Australia at David Jones and Country Road clothing brands, the company said.
At home, Africa’s biggest grocer Shoprite is now targeting wealthier customers as the recession hits lower-income consumers.
But Chief Executive Ian Moir is confident Woolworths, modelled on the style and products of Britain’s Marks & Spencer, can retain its market share.
“I’m losing sleep over a lot of things and Shoprite is not one of them,” Moir told Reuters. “We have been at the top end of this market forever, we know the market. We have made it difficult for anyone to attack our model.”
Woolworths, which sells groceries, food and homeware, said that headline earnings per share — the main gauge of profit in South Africa — fell by 7.6 percent to 421 cents in the year to June 25. That compared with a consensus forecast of a 6 percent fall in a Reuters poll of 12 analysts.
It declared a final dividend of 180 cents, bringing the total shareholder payout for the year to 313 cents, which was flat on last year.
Its food division boosted sales 8.5 percent, faster than the 1.4 percent increase in clothing arm, the margins of which dropped 48 percent on markdowns and increasing competition in Australia.
Moir said margins will continue the downward trend in the medium term.
“It’s going to continue to be tough, we are under no illusions about that,” Moir said in a presentation in Cape Town. “We are in a storm of change, the customer is changing, technology is changing … our markets are very tough places indeed.”
The company’s shares were down as much as much as 6 percent, before paring losses to trade 1.3 percent lower at 65 rand at 1154 GMT.
Woolworths aims to counter the market conditions with a structural shake-up including moving the headquarters of its David Jones clothing brand to Melbourne from Sydney, strengthening its beauty products offering, quicker stocking of new fashion and improving its food offering.
“Everybody is focused on cutting costs and putting their head down but we are spending a hell of a lot of money for the long term to look better,” Moir told Reuters.
“Our view is you either accept (the structural change in retail), change your model, change your experience, change your approach for the customer or you will wither and die — and we are not going to wither and die,” he told a presentation.
($1 = 13.2094 rand)
Reporting by Zandi Shabalala; Editing by David Goodman and David Evans