Different strategy in tale of two retailers BD 18 April 2001

FOOTNOTES Larry Claasen

THE recent legacy of two of the country's leading retailers, Woolworths and Pick 'n Pay, could not be more different.

Woolworths has been struggling, showing an 11,8% decline in headline earnings a share for its financial year ending June 2000, while Pick 'n Pay's headline earnings a share rose 21,9% for the year ending February 2001.

The difference in strategy revolves around the retailers' product and market focus.

In recent years, many retailers and retail analysts have viewed the local market as saturated and saw overseas expansion as a logical growth strategy and a hedge against a falling rand.

But unlike Woolworths, which decided to start or buy overseas operations a few years ago, Pick 'n Pay decided to revamp its stores and train its workforce.

The retailer believed there were still growth opportunities in the local market and decided not to buy an overseas operation.

Pick 'n Pay's performance is one of the most impressive in a retail sector hit hard by a decline in disposable income brought about by high fuel prices, as well as spending on cellphones and gambling.

In its results for the year ending February, Pick 'n Pay increased turnover 11,2% to R15,1m, and increased trading profit 20,9% to R396,1m. The retailer also increased its share of the food retail market 1% to 40%.

Pick 'n Pay CEO Sean Summers says the group is also starting to see productivity gains from workforce training. The large investment in information technology and redevelopment of its stores was also starting to pay dividends.

Pick 'n Pay has doubled the number of stores through its various franchise operations since 1996 and believes there is room for further expansion.

Although Woolworths' interim results for the six months ending December were not bad, the company's final results for the year ended June 2000 reported an 8,4% decline in operating profit to R399m from R436m.

Its Australian subsidiary Country Road only turned a profit for the first time in three years last year.

Woolworths went through a restructuring process last year which cost R45m and resulted in job cuts.

A retail analyst said the restructuring was necessary as Woolworths had become 'just too fat'.

But Woolworths CEO Simon Susman says the retailer got its clothing strategy wrong and wandered from providing good quality clothing at competitive prices to selling high-end fashion. He admits the group lost focus but said it is now working hard to become a competitive retailer.

Pick 'n Pay's chairman Raymond Ackerman acknowledges the productivity gains through progressive management were hard to measure.

Susman said Woolworths should not dabble in the very factors which threaten the retail sector, such as cellphones, the national lottery and gambling, if it wants to achieve its goal.