In difficult conditions, particularly for the group’s general merchandise brands, the 4.1 per cent increase in group sales for the year to June was respectable, with the fourth quarter sales growth (aided by the timing of Easter) coming in around the market’s expectation and showing some improvement in momentum as the year progressed.
Conditions for all retailers are difficult, with consumers increasingly tightening their purse strings, particularly for discretionary items.
For Woolworths, used to dictating terms, the dramatic improvement in the competitiveness of Coles and the disruptive strategies of Kmart have added to those pressures.
In food and liquor, fourth quarter comparable stores sales growth of 4 per cent and full-year comparable stores growth of 3 per cent were, in the context of price deflation of 3.3 per cent in the second half, quite respectable.
The more challenging segments were within its general merchandise division, where sales effectively flat-lined despite a base of quite undemanding numbers from a year earlier, when sales were affected by the falling away of the economic stimulus packages of 2009.
Big W’s sales were down 2.5 per cent for the year on a comparable stores basis, although 2.8 per cent ahead in the further quarter where the impact of the cycling of the prior year numbers was most pronounced.
Dick Smith’s sales were up 4.2 per cent on a comparable stores basis for the year, but down 1.2 per cent in the final quarter.
All the discount department stores (and some not generally referred to as discount stores) have been feeling the effects that the consumer conservatism, and the torrid price-led competition, the downturn and Kmart’s new price and volume-driven strategy have spawned.
There are no signs of conditions easing, indeed if anything conditions appear to be getting tougher – something Luscombe referred to when talking about the ‘’survival of the fittest’’ today.
In the absence of a reversal of the decline in consumer confidence, this year will be at least as tough, if not tougher, than last year.
Within the deflation experienced in the core food and liquor business was an unspecified element of Woolworths “lowering its prices for the benefit of customers in a dynamic market.” That would be a reference not just to the broader conditions, but to the Coles-inspired slashing of the prices for some staples.
Having guided Woolworths through several volatile and difficult years, Luscombe will hand over to O’Brien at quite an opportune time for a new CEO, assuming the group hasn’t unduly sacrificed margin and earnings to maintain its sales and can generate earnings growth in the mid-single digits for the year.
O’Brien, while he does have the challenge of executing the ambitious hardware store roll-out, inherits a group in a very strong position in the circumstances and will get something of a honeymoon which might just tide him, and Woolworths, through to more stable settings.
Source – Business Spectator