Johannesburg - Woolworths [JSE:WHL]' focus on two different consumer segments will do the firm more harm than good, an analyst has said.
The food and clothing retailer reported a 36% increase in headline earnings on Thursday for the year to end-December 2009. However, the group chose to include R41.6m as an exceptional item related to foreign exchange gains in the earnings figure. Had this been excluded, headline earnings would have been 10.4% higher.
"The management is making a song and dance [about the group's performance] but is hiding behind the wrong numbers," said retail analyst Abri du Plessis of Gryphon Asset Management.
According to Du Plessis, Woolworths management does not want to accept its clothing offering as a mass retailer to a lower income bracket.
"Management has turned it into a place where they and their wives would want to shop for clothes," said Du Plessis. "They've lost a huge market share by trying to move too high up on the income profile [for the clothing sector]."
Du Plessis said the success of the Woolworths food brand obscured strategic mistakes in the clothing sector.
Earlier at its results presentation, Woolworths CEO Simon Susman said the upper-income customer is the "heartland of Woolies' customer base".
Get a card and shop with taste
"The general Woolies customer, high income consumers, were very nervous," CEO Simon Susman told Fin24.com. "Everything they looked at concerned them - the inflation rate, the global economic crisis and the local political situation - but now things are starting to look better."
Woolworths recently launched its high-end Trenery clothing label. "It's sort of replacing the W brand," said finance director Norman Thomson. The W label was previously described as an affordable, value-focused clothing label.
Despite its infatuation with the higher income group, Woolworths will be relaunching its credit card offering - part of its financial services joint venture with Absa.
According to Susman, the card will offer lower-income customers "with good taste" the chance to shop at Woolworths.
"There are millions of South Africans with high aspirations that shop at Woolworths," said Susman. "We value them deeply; they can grow with us."
Credit Suisse Standard Securities also noted that Woolworths needs some "strategic clarity".
"Our concern is that recent management change leads to brand repositioning towards higher price points and away from the traditional and profitable, middle-market customer," it said.