Woolies (really) should stick to food and forget about Aus – Gilmour


Now that Woolworths plans to sell its interest in the Australian David Jones business, it should do the same with Country Road, leave Australia entirely, and focus on rebuilding its strength in its core food business.

This is the view of independent retail analyst Chris Gilmour, who believes the while the Australian Country Road business is a far better quality operation than David Jones ever was, Woolworths’s strength is in food – and that is what it should focus on.

“Our view is that [Woolworths] should be out of [Country Road] as well; they should be out of Australia full stop. I suspect that over time they may well be out of Australia in its entirety, but this is a good first step.

“Country Road isn’t a David Jones. It’s an awful lot better, but it’s still not fantastic.

“I think this goes for Woolies generally: they’ve displayed a wonderful inability to get clothing right in South Africa or in Australia,” Gilmour told Moneyweb.

“They are not particularly good when it comes to clothing. They are much better when it comes to food, and at the end of the day, in this world of competitive advantage, you’re better sticking to your knitting.”


Gilmour’s comments follow Woolies’ announcement on Monday that it will be selling department store chain David Jones to Sydney-based private equity fund Anchorage Capital Partners.

‘Australian market still holds promise …’

Experts have made several cases for the business to be dropped by the retailer over the years, but Gilmour went a step further – making a case for the SA group to exit the Australian market entirely.

Moneyweb shared the findings of a report by Salmour Research, co-authored by Gilmour and Rod Salmon, more than a year ago.

The report found that a separate listing of the group’s food entity, unencumbered by its less exciting businesses, would bring far more value to Woolworths shareholders.

Read: EXCLUSIVE: Exit Aus and list Woolworths Food separately, say top retail analysts

However neither Woolworths Group CEO Roy Bagattini nor retail analyst Wayne McCurrie of FNB Wealth and Investments seem to share Gilmour’s views.

Speaking on a conference call with the media on Monday, Bagattini said the group will continue to exist in the Australian market.

“Unfortunately, the David Jones experience for Woolies has not been a great one; it has been a painful one for us and our shareholders for a lot of the reasons that everyone knows,” he admitted, adding that this doesn’t mean Australia and its customer base is without opportunity.


“We have another business there – the Country Road Group – which we’ve owned for the better part of two decades and that’s a business with a different type of model, different trajectory and significant headroom that we are actually excited about,” said Bagattini.

McCurrie doesn’t see a pressing need for Woolies to let go of Country Road either, as the business is “doing alright” and “why leave when it’s working?”.

He said Country Road could probably do better in terms of performance, but that the Australian problems “were David Jones”.

Missing the point?

For Gilmour the state of the Australian market isn’t the main challenge – the problem, he says, lies with Country Road’s ability to compete for customer spend in an already competitive apparel market.

He points out that Country Road is upmarket in nature and doesn’t have the benefit of “selling affordability” – unlike TFG Australia, which has found a sweet spot in terms of price point, merchandising and sourcing, and thus has a much more positive story in that country.

“The Australian apparel market is fantastic and you only have to look at TFG Australia to get a flavour of how good it really is,” he says.

“And one of the main reasons it’s so good is because young upwardly mobile people in Australia can never think of buying property because it’s far too expensive – so they put all their spare cash into looking good [and they] spend on clothes.”

Gilmour says Country Road is an iconic label and the “quality is fantastic”, but it goes through phases. It previously had to reinvent itself, and did quite well but “it’s been languishing a bit recently”.

“If you look at those results coming out of Country Road, they are not anywhere near as good as the results coming out of TFG Australia.

“The background economy in Australia is fantastic for apparel – you struggle to get anything much better than that anywhere in the world now because the dynamics are just so good …

“But is Country Road necessarily the best vehicle? I am not sure it is. It’s expensive.”

He says TFG is a much lower-end brand that covers “a whole variety of clothes” and does it well. “They’ve really exploited that little niche they’ve got in Australia.”

Read: Growth in Woolies Food division slows

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