Woolworths’ management stability produces market share gains, bucks trend

I’ve known Woolworths CEO Ian Moir (53) for over a decade. We met in 2002 during a six week stay in Australia when setting up Mineweb.com’s Perth office. At the time, my company was also hoping to acquire a Moneyweb-lookalike in Sydney. My visit to the harbour city co-incided with a tour of SA-related retail operations by a group of Johannesburg-based investment analysts. Moir was then CEO of Woolies’ Australian subsidiary Country Road, a leading fashion retailer. Apart from having to deal with tough trading conditions, Moir was fending off a local politician/corporate agitator Michael Kroger whose consortium, which included the fabulously wealthy Solomon Lew. Kroger, whose consortium held just under 12% of Country Road, spent years trying to get  Moir fired. The Scots-born retailer beat off that challenge, turned Country Road around and was rewarded by being appointed CEO of the holding company in November 2010, succeeding long-time leader Simon Susman (63) who is now the executive chairman. Moir popped over to the CNBC Africa studio while visiting Johannesburg a week after releasing a trading update for the year to end June. Here’s the interview.

ALEC HOGG: It’s trading update season from retailers and interestingly enough, when Woolworths brought its trading update out a week ago the share price remained steady.  Usually that’s not anything to celebrate. But given that Shoprite has dropped R20 a share from R190 to R170, and Truworths has dropped 10% itself in a day or so after their trading updates have come out, it does tell you something about the market’s delight, relatively speaking, with the Woolworths trading update.  In studio with us is Ian Moir who’s the Chief Executive of Woolworths Holdings.

Ian, what do you think…?  Let’s just go back into the differences, because the trading updates don’t give too much detail about the underlying results.  Yours was welcomed, your competitors not?

IAN MOIR: Yes, Alec, I think ours was to expectation, and I think that’s the importance of it.  Truworths and Shoprite are very good businesses that have a long history of performing and long history of not surprising the market.  And I think particularly, yes, the market got a  bit of a surprise with the Truworths results – whether it should have gone down by as much as it has is a question that someone else can answer.  But I think, with us, we keep on delivering what we’re saying we’re going to deliver – no surprise to the marketplace.  And I think also it’s a good result in a difficult environment, generally.

ALEC HOGG: You’ve also got a lot of stability in your management teams. I was just reading your annual report last night, Simon Susman, your chairman, has been with the Group for 30 years – non-executive chairman.  Now you’ve been since, well, it’s since the 90s you’ve been running Country Road, or been involved in Country Road in Australia and, of course, come over here.

IAN MOIR: I think any good business is only as good as the people it has in its senior team and that’s throughout the business.  And we’re very fortunate we’ve got a great and stable senior management team.  I was watching one of your competitor programmes the other day…

ALEC HOGG: You weren’t?

IAN MOIR: I was!  I have to say.  Alec, I’m sorry!  I’m sorry – just like you said you shop at Pick n Pay, I watch other programmes…

ALEC HOGG: I don’t shop at Pick n Pay – I shop at Woolies!

IAN MOIR: …and they described start the management team as world-class.  They described, actually, both ourselves and Shoprite as a world-class management team?  And I think that what we’ve got, we’ve got great guys, great experience, been around a long time, complementary skills, it makes a big difference.

ALEC HOGG: The one thing that would worry us looking forward is you’ve had an unbelievable run – 34%pa return to shareholders in the last decade.  The latest trading update says you’re going to produce somewhere between 25% and 30% on headline earnings for the current financial year, and the year before you were around 25%.  It already shows us that that 34% is perhaps a little out of reach now.

IAN MOIR: Look I think we keep trying to get another great result on a great result on a great result. It’s hard, but you’re only as good as your next result – any business knows that.  And we’ve got a lot to do; we’ve got a lot of plans in place; we’re very clear on how we’re going to grow the business; business is performing, we’re taking market share, and I think we can continue to do so.  The whole team is very focussed on taking advantage of where we are in the market relative to others.

Our consumer is in a stronger position. Our main competitors are in turnaround situations.  And when you’re in that situation you’ve got to take advantage. We’ll continue to do so, so I don’t think we’re ex-growth either top line or bottom line.  Certainly, our business – not just in South Africa, also in Australia – is performing exceptionally well.

ALEC HOGG: Let’s get into some of the comments that were made about South Africa.  Your chairman was outspoken about his concerns of the growing gap, as he calls it, between business and “the increasingly vocal and more populous political thinking” in this country.  Is this something that would translate into decisions that you make at a business level?

IAN MOIR: It’s not like Simon (Susman) to be controversial, is it?  Simon is a great chairman.  He understands the Woolies business, the Woolies brand; he understand the South African marketplace, the politics of South Africa exceptionally well.  So to be able to have that experience and have access to that experience, it makes a great difference for our business.

So, of course, in making the decisions we make, we’re cognisant of what’s going on around us, what the views are, and do you know what, it’s always better to listen to the wise heads around the table. And we’ve got an exceptional board, both internationally and locally. So, yes, of course, their views, their opinions, their thoughts are very much used to inform every decision the business makes.

ALEC HOGG: You’re talk about that Board – you brought in top executives from Marks & Spencer, Tesco, to serve on your board here, but where I’m going with this is into Africa.  The rest of the world talks about our continent and their mouths salivate.  You’ve got 51 stores outside of South Africa on the continent – is this becoming more of a priority?

IAN MOIR: Yes, it is more of a priority.  Two weeks ago I visited six of the African markets and I think there’s real potential for us. We’re not doing a good enough job in Africa, and I think we can kick our Africa sales up a good notch just by doing better than we are currently.  Our floor goods isn’t good, profiling of the store, understanding of the customer and giving it more of a priority within the business.  And so by doing those things we can grow our Africa business.  But I also see the opportunity to open more stores, to build our market further, to invest in that now for the future.  Some markets, very profitable now; some markets not so, but will be so in the future.

So very much, it’s on our agenda to make it a greater priority, to drive Africa harder.  But at the end of the day it will only be 10%, 15% of our business in time to come.

ALEC HOGG: What’s time to come?

IAN MOIR: I would say three years, three to four years.

ALEC HOGG: Look at West Africa, which is far more populous than where you are concentrated, and you only have two stores in Nigeria and one in Ghana.

IAN MOIR: Yes, Nigeria’s very difficult.  You can’t do business in Nigeria easily.  There is no formalisation of shopping, so there’s only a couple of shopping malls – most of it is informal.  To get anywhere in Nigeria takes an inordinately long time.  The rental costs are expensive, labour costs are high, and it’s Northern hemisphere, not Southern hemisphere.  So it is not without its difficulties.  And we’re not a known brand, and the Nigerians tend to go North because of the hemisphere issue – shop in the UK, they know those UK brands.  So it’s going to take us time to establish our brand, get the awareness out there, and get people to understand we’re not Woolies from the UK.

But it takes time, and do you know what? – sometimes you have to invest in the now for the long-term future.

We have 12 stores in Kenya – Kenya is a very good market for us.  Spent a bit of time in the Kenyan market just two weeks ago.  We’re opening, I think, four more stores in the next year-and-a-half.

ALEC HOGG: You’ve really done well in Australia where you spent a lot of time.

IAN MOIR: Yes, our results in Australia are very good, indeed.  We’re very pleased with them and I’m very proud of the achievements there.  The new Chief Executive, he’s combined the new businesses; acquisitions we made worked out very well for us, we got a great price…

ALEC HOGG: Where does that put you now in the Aus market?  With Witchery and your Country Road?

IAN MOIR: We’re about A$700 million, so we’re the second largest specialty apparel business.  It’ll be a billion dollar business within two years; trading exceptionally well, all cylinders firing, integation going well, online going very well for us in in Australia.  So very happy, and with the Australian dollar where it is, it’s been a nice Rand hedge.

ALEC HOGG: What did you do differently?  We’ve seen so many South African businesses try in Australia and come back with their tail between their legs.

IAN MOIR: We’ve seen a few failures, Alec.  I think the difference is that Simon and the Board, when I was there, let me run that business, and the management team we had, particularly on the design side, really understood that market.  They understood the market, they understood the customer, they understood the brand very well.  It took us a fair old while to turn it (Country Road) around because it was in a pretty bad shape, but we turned it around; it’s now a valuable asset for the Woolworths business.  But I think it’s all about understanding that if you make an investment and you invest in a different market you can’t force your standards, your principles and your way of doing business in a different country.

ALEC HOGG: So you didn’t relocate a bunch of South Africans who wanted to emigrate?

IAN MOIR: You can’t do that.

ALEC HOGG: And similar with your strategy into other parts of Africa?  Will you be bringing in locals?

IAN MOIR: Whenever we can we do. They’re all very different markets – you know that better than I do – so you need to understand that local market, operate as a local entity within that market, and that means not shoving in South African or Australians – whoever it may be.  We want to own those businesses, control those businesses.  We don’t want franchise operations in those marketplaces. But we also want to recognise they are different and they should be run differently and they have different requirements.

* Alec Hogg is a Business Keynote Speaker, online publisher, writer and broadcaster.

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