tag:theconversation.com,2011:/africa/topics/woolworths-sa-9865/articlesWoolworths SA – The Conversation2015-07-31T05:44:59Ztag:theconversation.com,2011:article/453702015-07-31T05:44:59Z2015-07-31T05:44:59ZWelcome to blandsville? Myer and David Jones embrace grocery-style streamlining<p>Australian department store retailers David Jones and Myer have both recently moved to rationalise the number of clothing brands they offer in their stores. This strategy brings two common retail sayings to mind. First “to win in retail, you can’t be everything to everyone”, and second, “if you’re not growing, you’re going backwards”.</p>
<h2>In retail, you can’t be everything to everyone</h2>
<blockquote>
<p>“It is high time we retailers realised that we cannot be all things to all people. When we try to do that, we end up with no particular appeal for anybody.”</p>
<p>– Martineau, Pierre “The personality of the retail store” (1958). </p>
</blockquote>
<p>These sentiments have never been more pertinent than in today’s retail environment where competition is fierce to secure market share and squeeze what little growth is left out of mature fashion apparel markets.</p>
<p>Maturity is forcing retailers to take one of two routes to compete for share of customers’ wallets: competing on price, or competing on superior benefits that are highly attractive to specific customers. While price is still an important part of the retail mix for upmarket department stores such as DJs, for the most part these retailers have left this price war to the discount end of the market – Kmart and Big W. Taking the second route to compete – provision of unique benefit to customers – requires retailers to make choices after defining their target customer.</p>
<p>Taking a walk through either a DJs or Myer store just five years ago would have given one the sense that these were “upmarket” retailers with a premium image and expensive brands to boot. Defining exactly who they were targeting, however, would have proved more difficult. With store floors cluttered with an eclectic range of brands and own label clothing, it would seem that they were targeting anyone who could shop in their stores and were prepared to pay the prices. </p>
<p>The entrance of savvy global retailers into the Australian apparel market, such as H&M and Woolworths SA, combined with shifting expectations of customers has changed the clothing retailing game. Searching for growth in a crowded market is forcing retailers like DJs and Myer to carve up the market into different consumer segments, and target a few specific segments with their offers. As Daniel Bracken, Myer’s chief merchandising and marketing officer, <a href="http://m.theage.com.au/business/retail/myer-clears-out-private-labels-as-part-of-brand-cull-20150729-gimzin.html">says: </a></p>
<blockquote>
<p>“We have a very clear focus on who the most valuable customer is to our business and that’s what is driving us to put these new brands in our business.”.</p>
</blockquote>
<p>Identifying and targeting attractive customer segments in the market requires a deep understanding of who they are, where and why they shop; and strategic shifts in the retail offer.</p>
<p>The recent <a href="http://m.theage.com.au/business/comment-and-analysis/big-department-stores-forced-to-axe-the-runts-of-the-brand-litter-20150729-gin12i.html">reductions in the ranges</a> offered at Myer and DJs – around 100 and 180 brands from their respective brand portfolios, shows they are in the midst of significant transformation. This means shifting from a store for everyone (my store, Myer) to a focus on specific customer segments. Undoubtedly these retail transformations are focused on growth.</p>
<h2>In retail, if you’re not growing, you’re going backwards</h2>
<p>A key metric that clothing retailers live and die by is gross margin return on investment – GMROI. That is, how many gross margin dollars are earned on every dollar of inventory investment. </p>
<p>There are two ways to grow GMROI in retail: (1) increase sales to the customer; and (2) decrease internal/inventory costs. In reducing their ranges and moving to increase the floor space dedicated to targeted branded and own label ranges, retailers DJs and Myer are seeking to improve ROI from both directions. </p>
<p>If implemented well, these range reductions will also benefit shoppers. For instance, fewer brands on the shop floor reduces clutter and increases the visibility of the brands that are ranged, making it easier to shop. Fewer brands on the shop floor should also lead to reduced out-of-stocks – which is a top source of dissatisfaction for customers and a key reason to take their wallet to another retailer, permanently. </p>
<p>So what does this mean for small, local apparel brands? Undoubtedly the range rationalisations in DJs and Myer will impact wholesalers and small local labels that relied on these retailers stock and sell their offers. Increasingly, however, we are seeing branded manufacturers bypassing the big-box retailers and forging their own retail channels direct to their target customer through online stores, funky pop-ups and concept stores – such as the Bendigo-based family owned boutique furniture manufacturer Jimmy Possum. Unlike the grocery scenario in Australia, customers have power in this market and are prepared to shop in alternative channels for their clothing.</p>
<h2>The vanilla-fication of clothing retail?</h2>
<p>Is the brand rationalisation being played out on the store floors of Myer and DJs just the start of the “vanilla-fication” of clothing retail in the Australian market? Are we seeing a homogenisation and shift towards “blandsville” in the name of corporate profit growth and margin? Not likely.</p>
<p>What is more likely is that we are going to see smarter, tighter, and more targeted ranges of own label and supplier brands that reinforce the image of the retailer and resonate with their ideal customer. </p>
<p>Rather than banking the profit gains from these tighter ranges, expect to see DJs and Myer reinvesting these gains into tailoring the store environment to the target customer and delivering genuine, seamless <a href="http://www.igd.com/our-expertise/retail/innovation-digital/18003/omnichannel-retail--what-it-is-and-what-it-may-become/">omni-channel experiences</a> across all retail channels – online, mobile, in store – to build a competitive edge. </p>
<p>The range reductions on the shop floor in DJs and Myer may herald a shakeup in the local market to a more exciting and innovative space, with local brands moving out from the shadows of the big-box department stores and establishing their own innovative routes to the customer – such as digital and pop-up, using their size and agility to carve out their own space.</p><img src="https://counter.theconversation.com/content/45370/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michal Carrington does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The reduction of brands at major department stores could actually be a good thing for customers.Michal Carrington, Lecturer in Marketing, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/438292015-06-25T06:21:19Z2015-06-25T06:21:19ZDavid Jones seeks to exploit top end gap in Australian grocery<p>While Australia’s supermarkets continue to <a href="https://au.finance.yahoo.com/news/iga-joins-supermarket-price-wars--slashes-prices-025704637.html">battle on price</a>, the South African owner of David Jones, <a href="https://theconversation.com/who-is-the-south-african-retail-giant-behind-the-david-jones-bid-25472">Woolworths Holdings</a>, has found a gap in the Australian grocery market and is preparing to exploit it. </p>
<p>Reports that the group has appointed Pieter de Wet to <a href="http://www.brisbanetimes.com.au/business/retail/woolworths-vs-woolworths-djs-new-owner-to-overhaul-food-business-20150624-ghwgqo.html">overhaul the David Jones food business</a> signals once again the ever-changing face of the Australian food and grocery landscape. A re-energised David Jones food offer will provide positive outcomes for both shoppers and suppliers, while potentially becoming another headache for Coles and Woolworths.</p>
<h2>A splintering market</h2>
<p><a href="http://www.igd.com/Research/Retail/retail-outlook/3371/UK-Grocery-Retailing/">Similar to the UK</a> and Europe, the Australian grocery market is beginning to split into discounters at one end and mainstream supermarkets at the other. While the growth of discounter-style grocers continues to outperform supermarkets and <a href="http://www.conveniencestore.co.uk/news/discounters-growing-faster-than-c-stores-and-supermarkets/520418.article">convenience stores globally</a>, the “top end” of the market appears ripe for exploitation. </p>
<p>Globalisation, innovation, multiculturalism, media, travel and the internet have shifted the power from the retailer to the consumer. Information-rich food shoppers are now more empowered to make decisions than ever before. Exotic food from around the world is available at local bistros across Australia suburbs. Reality television cooking shows and gourmet food markets tempt shoppers to seek out <a href="http://www.ift.org/food-technology/past-issues/2015/april/features/the-top-ten-food-trends.aspx?page=viewall">exclusive, unique fare</a>. </p>
<p>The days of “meat and three veg” have long gone. Herein lays the opportunity for David Jones. </p>
<h2>Value isn’t just about price</h2>
<p>Media reports are claiming that rather than reporting to David Jones’ CEO Iain Nairn, de Wit will report directly through to Woolworths SA CEO Ian Moir – something that he has <a href="https://www.linkedin.com/pub/pieter-de-wet/39/134/b84">done since October 2014</a>. This arrangement has accordingly added to the speculation that Woolworths SA is aiming to capture the high-end grocery segment by opening David Jones-branded food stores in a <a href="http://www.hartlepoolmail.co.uk/news/business/exclusive-first-look-inside-new-hartlepool-marks-spencer-store-1-7310781">similar ilk to that of Marks & Spencer</a>. </p>
<p>Such a strategy has proved successful in cushioning several international supermarkets from increased price discounting. Offering juice bars, free wine tasting, premium products and local food feature in UK supermarket Waitrose’s bid to continue to grow in a grocery market increasingly driven by <a href="http://www.theguardian.com/business/2014/may/02/waitrose-supermarket-discounters-upmarket-offers">discounters and price cuts</a>. </p>
<p>Similarly, US supermarket Whole Foods has repositioned itself as the <a href="http://wgbhnews.org/post/showdown-produce-aisle-whole-foods-vs-walmart">“healthiest grocery store” in America</a>. This demonstrates a move away from a price-focused strategy. It appears that Woolworths SA is planning to initially refresh the <a href="http://www.davidjones.com.au/Store-Services/Food/Food-hall">current David Jones Food Hall offer</a>, before potentially launching their own stand-alone sites similar to Woolworths’ <a href="http://www.thomasdux.com.au/">Thomas Dux Grocer</a>. </p>
<h2>Risks</h2>
<p>Woolworths SA was quick to hose down suggestions it was <a href="http://www.brisbanetimes.com.au/business/retail/woolworths-vs-woolworths-djs-new-owner-to-overhaul-food-business-20150624-ghwgqo.html">planning a move into food</a>, citing the current increasingly competitive environment incumbents are operating within. Accordingly, entry into the sector without careful planning would be a risk for Woolworths SA given its current competitive nature. </p>
<p>The lack of an extensive supplier base is also problematic for food retailers entering international markets. Unlike general merchandise and apparel retailers, who mostly manufacture and produce overseas and import into a country, food retailers are highly dependent of domestic supply. </p>
<p>Notably, previous attempts to launch an upmarket grocer <a href="http://www.smh.com.au/business/retail/jones-the-grocer-sparks-high-court-battle-for-l-capital-20150415-1mkwdc.html">domestically have failed</a>. Jones the Grocer’s Australian operations went bust in December 2014. Even in the UK, Marks & Spencer this week signalled the <a href="http://www.retail-week.com/property/-marks-and-spencer-proposes-nine-store-closures-as-it-focuses-on-quality-space/5076300.article">closure of nine of the food stores</a>, suggesting the current location of stores were not a “good fit” for the business. </p>
<p>Clearly, targeting shoppers seeking premium, exclusive food products will represent a very small but profitable segment – if well executed. Careful selection of store locations and securing supplier support could drive long-term growth for Woolworths SA. Following a Marks & Spencer model, possibly co-located food stores within David Jones department stores, may be the safest way to enter the market. </p>
<h2>Winners and losers</h2>
<p>It is evident that Australia is becoming an attractive market for international retailers, with its growing middle class, low unemployment and relatively strong economy. Global players such as Aldi and Costco have already set up shop, <a href="https://theconversation.com/move-over-aldi-lidl-may-be-next-for-australian-market-43185">while others like Lidl</a> and Marks & Spencer are <a href="http://www.powerretail.com.au/news/marks-and-spencer-australia/">rumored to be circling</a>. </p>
<p>As the food and grocery market continues to offer up new segments, new players will continue to enter, bringing with them greater choice for shoppers and stronger bargaining power for suppliers.</p><img src="https://counter.theconversation.com/content/43829/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Mortimer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While grocers slug it out with discounters, the South African owners of David Jones may be planning to exploit a gap at the upper end of the market.Gary Mortimer, Senior Lecturer, QUT Business School, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/288832014-07-10T20:16:05Z2014-07-10T20:16:05ZTakeovers should require go-ahead from shareholders<p>The fastest growing sector in the economy today is not mining, retailing or even education. It’s superannuation, which accounts for almost 30% more than the total savings held by the banking and mutual sector. </p>
<p>Self-managed superannuation is the fastest growing form of investment vehicle.</p>
<p>This has altered the landscape of both property and share investment. In the property market there are well-established regulations and safeguards. The stock market is a different story. </p>
<p>The proposed takeover of David Jones by the South African-based Woolworths and the deal made by Woolworths to buy Solomon Lew’s stake in David Jones, who happens to own an equally large share of Country Road (another takeover target of Woolworths), highlights the problem.</p>
<p>The board of the takeover target recommends to its shareholders what to do, but there is no formal requirement for shareholder approval. It’s assumed if the shareholders sell, that’s their approval. If they don’t sell, they don’t approve.</p>
<p>In the case of David Jones, a wealthy, assertive investor is getting a side deal not available to other investors.</p>
<p>Why should this happen? </p>
<p>In other countries, a formal takeover requires shareholder approval, thus discouraging side deals to occur where some walk away with large profits and others get what they can. </p>
<h2>David Jones</h2>
<p>The David Jones takeover provided an opportunity for some to simply profiteer, to the extent they could make more money linking this deal with others, thus cornering Woolworths to pay for deals it may not have planned.</p>
<p>If anything, the David Jones scenario raises questions as to whether a takeover of this nature is manipulative, unfair to ordinary shareholders and a distortion of the market mechanism. </p>
<p>The Australian Securities and Investments Commission (ASIC) has intervened, asking questions about the side deal protecting the interests of David Jones’ shareholders by intervening in Woolworths’ $2.2 billion takeover bid for David Jones.</p>
<p>As ASIC threatens to withhold its consent to the scheme of arrangement, a core part of the $2.2 billion takeover is arguing that a collateral benefit to one shareholder is not available to the other shareholders. The board is so keen to push the takeover that they are prepared to sell the takeover on the basis that the millions made on the side by Lew should not kill the deal. </p>
<p>Directors should of course be supporting the interest of the company as a whole and of all the shareholders. In the past the <a href="http://www.theguardian.com/business/2006/dec/14/australia.theairlineindustry">Allco Finance Group takeover of Qantas</a> had the same set of facts. A takeover favouring those few in particular linked to the board is a further reason for ASIC’s intervention.</p>
<p>ASIC is not about increasing share prices - it’s about access to a fair price. If one shareholder gets a huge side bonus which increases the prices, should those getting the crumbs be happy? Are their shares the same of those getting the bonus?</p>
<p>ASIC had failed in the Federal Court to force David Jones to secure an <a href="http://www.smh.com.au/business/retail/asic-steps-into-david-jones-country-road-battles-with-demand-for-independent-valuation-20140702-zstnq.html">independent valuation of the “collateral benefit”</a> that Woolworths was offering to one of its shareholders simply to buy his support for the David Jones scheme of arrangement. ASIC can always withhold a letter of consent for the scheme, on the grounds that all David Jones shareholders are not being treated equally.</p>
<p>In response, David Jones has provided shareholders with additional information to help show shareholders how this deal was done.</p>
<p>All this could be resolved if shareholders were given the complete, true facts in an accessible manner, and if takeover predators were forced to make the same offer to all and let shareholders decide.</p>
<h2>Why the loophole exists</h2>
<p>Law reform in the area of takeovers is well overdue and belongs to another age. Unlisted companies don’t require shareholder approval for takeovers on the presumption that shareholders don’t have enough information. The idea is public information and scrutiny aren’t as readily available as for listed companies.</p>
<p>This thought process belongs to a pre-internet era and is not very relevant today. The rule has been kept as it tends to favour larger investors who play the game of takeover and sales. Allowing other smaller shareholders more power would complicate the game, which explains why governments have kept their distance from changing these laws.</p>
<p>The world has moved on, and it’s only a matter of time before the predators and profiteers further manipulate the hordes of superannuation investors in the market to extract extraordinary profits.</p>
<p>It’s time for a closer look at shareholders’ rights, together with the regulation of the market place, to discourage two-tier takeover offers - one for the well-connected and aggressive market operators and another for the other shareholders.</p><img src="https://counter.theconversation.com/content/28883/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Peters does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The fastest growing sector in the economy today is not mining, retailing or even education. It’s superannuation, which accounts for almost 30% more than the total savings held by the banking and mutual…Michael Peters, Lecturer, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/255352014-04-12T04:38:06Z2014-04-12T04:38:06ZWhich Woolies is that?<figure><img src="https://images.theconversation.com/files/46172/original/ccgqynq9-1397186757.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The original Woolworth Company dates back to 1878.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/dominicspics/3776771364/in/photolist-6KJWxE-6KJV3o-6KEMSx-6KJVnQ-6KJVao-7EsX3N-4rgm3P-dtcZ5-ayWMWr-DXPZy-qn4Tj-qn58u-digy9y-65VjpJ-8a9bX8-g6rhj-g6rdz-bnezX9-74R11R-qn4pm-fxdXw1-6TtXpZ-fHZQ4A-9rJpZe-ahUdSt-e7VhKq-5kQLGK-zvkFt-zrqhZ-5kV2sA-5kV2pG-zrqPs-iH98pX-cj77WY-vmW5g-4thr3D-vmU2b-vmUf8-8dC83D-fEa7vj-wNkG7-f3RmN-qn41V-9bsQxN-qn5qf-2XfywU-akxMEH-hoh3ct-hoh43B-hoh2Xk">Dominic Alves/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>The <a href="http://www.smh.com.au/business/south-africans-lob-bid-for-david-jones-20140409-36dgb.html">bid</a> for David Jones from South African retailer Woolworths brings to light one curious dimension of international business - the proliferation of firms with very similar brand names but distinct identities. </p>
<p>That so many versions of Woolworths can be found around the world often causes confusion, so here’s some business history to hopefully clear up the etymology.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/46174/original/yxzftc9k-1397187076.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/46174/original/yxzftc9k-1397187076.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=901&fit=crop&dpr=1 600w, https://images.theconversation.com/files/46174/original/yxzftc9k-1397187076.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=901&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/46174/original/yxzftc9k-1397187076.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=901&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/46174/original/yxzftc9k-1397187076.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1133&fit=crop&dpr=1 754w, https://images.theconversation.com/files/46174/original/yxzftc9k-1397187076.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1133&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/46174/original/yxzftc9k-1397187076.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1133&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">No longer the tallest, but still imposing: Woolworth building New York.</span>
<span class="attribution"><span class="source">Wally Gobetz/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>US “five and dime” pioneer F.W. Woolworth Company is where it all started. It commenced operations in 1878-9 and quickly grew to be one of the largest retail chains in the US. The company’s headquarters in New York was, for a time, the tallest building in the world. The firm ran what we would now call low-cost, High Street, variety stores. F.W. Woolworth did not pursue a supermarket business, but did venture into department stores and speciality stores - most successfully Foot Locker. </p>
<p>With the decline of smaller scale variety stores, especially in the face of Target, Kmart and eventually Walmart, the US Woolworth stores eventually all closed and the parent company was renamed Venator in 1997. The company now trades under its most successful brand, <a href="http://www.footlocker-inc.com/">Foot Locker</a>, has a retail presence in 23 countries, and is the world’s 164th largest retailer (according to <a href="http://www.deloitte.com/view/en_CH/ch/industries/consumer_business/retailers_wholesalers_and_distributors/a21917cfaa74c310VgnVCM2000003356f70aRCRD.htm">Deloitte</a>).</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/46173/original/5p6zsrjg-1397186973.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/46173/original/5p6zsrjg-1397186973.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/46173/original/5p6zsrjg-1397186973.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/46173/original/5p6zsrjg-1397186973.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/46173/original/5p6zsrjg-1397186973.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/46173/original/5p6zsrjg-1397186973.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/46173/original/5p6zsrjg-1397186973.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">This South Carolina Woolworth building was the site of the 1960 lunch counter ‘sit in’ that helped spark the civil rights movement.</span>
<span class="attribution"><span class="source">Jimmy Emerson/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>The US firm internationalised into Canada, Mexico, Ireland and more significantly into the UK (in 1909) and Germany (in 1927). The UK stores flourished and became a staple of the High Street. The UK firm spun off from its US parent in the early 1980s, and operated successfully until late last decade. </p>
<p>In 2008 the UK entity entered receivership, as the firm had failed to manage the competitive onslaught from supermarket chains such as Tesco, Marks & Spencer and Asda and the decline in CD purchases (one of its biggest market segments). The firm’s 800 plus stores were closed and the brand was sold to an online retailer.</p>
<p>The German business was similarly prolific and by the time it spun off from the US parent in 1998 it had over 300 variety stores across Germany and Austria. It also battled insolvency in 2009, and was purchased by local giant Tengelmann (the world’s 88th largest retailer) which has revitalised the brand.</p>
<p>Most of the Canadian stores were sold off to Walmart in the mid-1990s. The rest closed. The Mexican business (in operation since 1956) slowly shifted into Mexican hands from the early 1980s (due to restrictive foreign ownership rules) and still operates under the Woolworth name.</p>
<p>Now we turn to two more robust Woolworths.</p>
<p>The <a href="http://www.woolworthslimited.com.au/">Australian Woolworths</a> is by the far the largest retailer of this name, coming in at #17 on the global retail rankings. This firm has never had a formal connection to any of the aforementioned firms. The gentlemen who started it in 1924 were simply opportunistic in using the brand name. Legend has it that they telegraphed the US firm in New York and told them that they were using the name, and that the Americans replied saying “That’s fine. We aren’t going to expand down there anyway”. </p>
<p>The Aussie firm was also originally a variety chain, but expanding into supermarkets in 1960. It is has subsequently extended its reach into a wide variety of offerings and formats. Its stable of brands includes Safeway, which was previously an internationalisation effort by the US firm of that name (#25 retailer in world) but was bought by Woolworths in 1985. This Woolworths has not been an overly ambitious internationaliser until very recently. It did enter New Zealand in the early 1930s, but sold the brand on in 1979 and only bought it back in 2005.</p>
<p>And finally, we get to the <a href="http://www.woolworthsholdings.co.za/corporate/group_structure.asp">South African business</a>. It has been in existence since 1931. </p>
<p>Founded by Max Sonnenberg and his son Richard, the firm had no connection to the US or UK businesses. By 1947 it had signed onto a distribution relationship with UK retailer Marks & Spencer which is maintained to this day. It sells clothing, groceries and homewares and is one of the more geographically dispersed retailers in Africa, operating via franchise in countries such as Botswana, Kenya, Lesotho, Mauritius, Mozambique, Namibia, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe, as well as the United Arab Emirates (it pulled out of Nigeria in November 2013). The firm also owns Australian fashion retailer Country Road.</p>
<p>Intriguingly in this complex world of retail doppelgangers, none of the firms had really trod on each other’s turf until now, reflecting the limited internationalisation of retailers generally. As the South African Woolworths has no intentions to bring its eponymously branded stores to our shore, I guess it’ll just be the business pages that get more confusing.</p><img src="https://counter.theconversation.com/content/25535/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andre Sammartino does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The bid for David Jones from South African retailer Woolworths brings to light one curious dimension of international business - the proliferation of firms with very similar brand names but distinct identities…Andre Sammartino, Senior Lecturer in International Business & Strategic Management, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/254722014-04-10T02:00:31Z2014-04-10T02:00:31ZWho is the South African retail giant behind the David Jones bid?<p>Yesterday morning came the news <a href="http://www.abc.net.au/news/2014-04-09/david-jones-board-recommends-takeover-bid-from-south-african-wo/5377126?section=business">South African retailer Woolworths had offered $4 a share to acquire David Jones</a>, a proposal that has the approval of the department store’s board. This offer, worth an estimated A$2.15 billion, represents a 25% premium over the current share price value. An earlier offer, <a href="http://www.theage.com.au/national/myer-still-keen-on-merger-with-david-jones-20140220-3348n.html">from rival Myer</a>, was rejected earlier this year.</p>
<p>But who is Woolworths? Not to be confused with Australia’s largest supermarket, Woolworths SA is one of South Africa’s largest retailers.</p>
<h2>No ordinary grocer</h2>
<p>Woolworths SA has been one of the biggest South African retailers since the early 1930s, primarily targeting middle-class and wealthy consumers. The company’s first foray into department stores came after World War 2, when it established strategic links with British retailer Marks & Spencer and modelled their stores on the British retailer’s layout and design. Although a close relationship still exists between them, neither has vested financial interests in the other today.</p>
<p>Woolworths SA operates a number of different retail offerings – from full-line homeware stores to food and groceries – in South Africa, neighbouring countries, as well as in Australia and New Zealand. from full-line homeware stores to food and groceries.</p>
<p>The chain currently offers only a small range of products through its recently launched online platform. But it has moved into a number of different online spaces quickly. Woolworths <a href="http://retailjobsafrica.com/woolworths-first-south-african-retail-group-to-offer-facebook-shopping">partnered with one of South Africa’s largest marketing agencies Quirk</a>, for instance, to develop a f-commerce (Facebook-commerce) platform, <a href="http://www.woolworthsholdings.co.za/investor/annual_reports/ar2011/integrated/business/industry_trends.asp">targeting South Africa’s fast growing younger tech-savvy consumer</a>.</p>
<p>In all, Woolworths SA operates 150 corporate-owned stores and nearly 70 franchises in South Africa. It also has over 50 international franchises in other African nations and the Middle East.</p>
<p>Woolworths is not foreign to Australia either, owning nearly 90% of retail chains Country Road, Witchery and Trenery since 1998.</p>
<p>Nor is Woolworths CEO Ian Moir a stranger to Australia’s sometimes colourful world of business identities, being <a href="http://www.smh.com.au/business/woolworths-chief-ian-moir-is-veteran-of-country-road-spat-with-solomon-lew-20140409-36dg5.html">involved in a spat with businessman Solomon Lew over Country Road for nearly two decades</a>. Lew is Country Road’s second largest shareholder through his company Australian Retail Investments, which lost a bidding war with Woolworths for control of the retailer. </p>
<h2>A strong suitor</h2>
<p>The arrival in South Africa of global powerhouses like Zara, Topshop and soon H&M, (which also launched in Australia this week) has forced Woolworths to innovate. Since then, it has been working on a procurement strategy to shorten lead times, and claims it can now get more than 30% of its own range to the market in just five to seven weeks, where previously it took more than 11 months.</p>
<p>Its financial reports suggest the company has significant cash resources, a strong retail strategy and is looking to expand. In February, the retailer announced an aggressive three-year plan to <a href="http://www.bdlive.co.za/business/retail/2014/02/17/woolworths-to-open-fashion-brand-stores-across-sa">roll out Country Road, Witchery and Mimco stores into South Africa</a>.</p>
<p>Overall half-year sales across the global group increased 16.2% for 2013, compared to 8% growth in clothing sales for comparable stores.</p>
<p>The group’s Australian subsidiary Country Road performed extremely well with net profit increasing 72% to $37.95 million for the six months to December 28, <a href="http://www.theaustralian.com.au/business/companies/record-halfyear-profit-for-country-road/story-fn91v9q3-1226816653860">up from $22.1 million for the same period in 2012</a>.</p>
<h2>A happy pairing?</h2>
<p>If the takeover is successful, David Jones will have access not only to cash, but international retail management expertise, which will allow it to improve its online offering, refurbish stores, improve its range and secure exclusive international brands.</p>
<p>The acquisition of David Jones will mean Woolworths can reach a sufficient scale to compete effectively with other large global retailers. The <a href="http://www.woolworthsholdings.co.za/whl_mini_2014/pdf/transaction_announcement_final.pdf">announcement</a> referred to “efficiencies and economies of scale that will over time deliver a material improvement in profitability” as the rationale for the takeover.</p>
<p>A reinvigorated David Jones, clearly positioned as a high-end, full-service department store will capture a bigger slice of discerning shoppers’ dollar. Already, international fashion retailers – Hermes, Louis Vuitton and Hugo Boss, for instance – are entering or expanding in the Australian market, so it is evident that opportunities exist in this segment. </p>
<p>The takeover comes during a period of rapid expansion for Woolworths, as it reorientates business away from some emerging African countries – <a href="http://www.iol.co.za/business/companies/woolworths-quits-nigeria-1.1603256">late last year it withdrew from Nigeria</a> – and as it focuses on <a href="http://www.woolworthsholdings.co.za/media/news_display.asp?Id2=618">internationalising its existing brands</a>.</p>
<p>The challenge for rival Myer is that it is currently “stuck in the middle” with no clear position.</p>
<h2>Considerable risks</h2>
<p>But high-end department stores in Australia are not in the same strong market position as department stores in South Africa. Wealth in South Africa has become more highly concentrated in the hands of the rich since the transition to democracy began in 1993. Between 1993 and 2008, the middle class grew 26% while the wealthiest <a href="http://www.bdlive.co.za/national/2013/07/29/sas-upper-class-more-african--and-ever-wealthier">trebled in size and grew from 0.4% of the population to 1.3%</a>.</p>
<p>With South Africa’s population more than double that of Australia, Woolworths SA has continued to grow, while <a href="http://www.theafricareport.com/Southern-Africa/the-future-of-south-africas-rising-middle-class.html">meeting the needs of an emerging middle and upper class</a>. </p>
<p>In Australia, the high-end shopper segment is relatively small and predominantly located in cities like Melbourne, Sydney, Brisbane and growing in Perth.</p>
<p>And Australian shoppers continue to be cautious. Westpac’s Melbourne Institute Index of Consumer Sentiment <a href="http://www.westpac.com.au/docs/pdf/aw/economics-research/er20140212BullConsumerSentiment.pdf">suggests the shine may have come off retail spending</a> already as households start to worry about the future. Specifically, the component of the Index measuring consumers’ expectations for the economy over the next 12 months is at its lowest level since March 2012.</p>
<p>Woolworths SA may be biting off more than it can chew.</p><img src="https://counter.theconversation.com/content/25472/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Mortimer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Yesterday morning came the news South African retailer Woolworths had offered $4 a share to acquire David Jones, a proposal that has the approval of the department store’s board. This offer, worth an estimated…Gary Mortimer, Senior Lecturer, QUT Business School, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.