Johannesburg - Price reductions in its food and clothing lines ranked high in Woolworths Holdings' turnaround strategy, said CEO Simon Susman following publication of the group's full-year results.
On Wednesday, Woolworths posted a 4.9% dip in headline share earnings and an 18.1% decline in operating profit for the year ended June.
Susman said Woolworths ceded about 0.5% of market share in its food division as cash-strapped consumers turned to retailers such as Shoprite and Spar, which better serviced the middle- to lower-income earners.
"Conditions are tight," said Susman in an interview. "Customers are trading down to what they perceive is cheap."
Said Susman: "That's why we are sorting out our prices in basic food and basic clothes. But we've got to make sure that we stick to our philosophy of good quality, innovation and price competitiveness."
Chris Gilmour, a retail analyst at Absa Asset Management, said Woolworths' financial year was characterised by restructuring and re-engineering, including the sale of the group's financial services business to Absa as well as the introduction of value prices.
Food inflation takes its toll
Price reduction was a "clever" strategy which should yield the desired outcomes for the group as long as it does not compromise quality. "I would be very surprised if this doesn't turn out good for Woolworths," he said.
Woolworths' price engineering formula includes meal deals of R100 for a family of four and reduced prices for further purchases. Coupled with this was an innovative clothing fashion range aimed at young adults.
Gilmour said Woolworths' strong brand and quality products would continue to shield the group from the severe effects of the recession.
Despite a lower profit, group turnover was 5.5% or 7.2% higher, excluding the effect of the extra trading week in 2008 which was a leap year.
"Given current economic conditions and the opening of new stores, I think we were able to control costs," said Susman.
"We managed the business very cautiously. Our food business continues to grow faster than the clothing business, but it was held up by inflation which was higher than in clothes."
Susman said Woolworths' inflation was considerably lower compared to its peer group, with food stores standing between 11% and 12%. Inflation in its clothing stores was at 2.5% during the year under review.
- Fin24.com