Sasha Planting
1 minute read
11 Apr 2014
7:00 am

Woolies’ Oz plans have investors nervous

Sasha Planting

Investors are unnerved by Woolworths' bold plans to acquire Australia's oldest retailer David Jones for a hefty R21.4bn to become the second-largest department store in the southern hemisphere.

Image courtesy stock.xchnge (PocketAces)

The share price fell a hefty 7.5% on Wednesday when Woolworths announced it had offered Australian shareholders A$4/share to take the company private.

Woolworths paid a 25% premium on the market price before the bid was announced.

Woolworths Chief Executive Officer Ian Moir sees David Jones as the perfect platform from which to launch Woolies expansion into Australia. The company is similar in many ways in that it stands for quality and value, it targets an upper income consumer and no-one can remember a time when it did not exist.

David Jones could do with an injection of Woolworths and Moir energy. The company has been losing market share and sales volumes are falling. It is desperately trying to regain its former glory and is implementing a “Future Strategic Direction Plan” to convert the business from a “bricks and mortar” retailer into an “omni channel” retailer.

Moir sees opportunity where others see problems. The Woolworths team has identified value creation opportunities that will add R1.4bn/year to the bottom line within five years, he says.

The Woolworths team has identified value creation opportunities that will add R1.4bn/year to the bottom line within five years, he says. These include capitalising on the design and procurement strengths within Woolworths as well as product and sourcing capabilities to drive margin improvements across the group.

At present roughly 40% of Woolies product is sourced from SA and SADC countries. Moir believes SA produced product can be exported to Australia.

Another opportunity is to bump up David Jones’ sales of private label (own brand) clothing. “Woolworths is 100% private label while David Jones is 3.5% and the international benchmark is 20%,” Moir says. “Private label offers significant opportunities to enhance margins.”