Woolworths readies for battle

After being ineffectually prodded and poked for years, the retail beast that is Woolworths is stirring and becoming battle ready to lumber after fire-breathing archrival Coles.

“We have put the past behind us,” declares CEO Brad “dragonslayer” Banducci, lance in hand. “There are early signs our strategy is working.”

The most heartening here-and-now aspect of Woolies’ multi-pronged get-fit strategy unveiled today is that shoppers are returning to its revamped stores and — get this! — actually buying more stuff.

This turnaround, which has only just become apparent, comes after 27 consecutive quarters of being flogged by Coles on like-for-like sales growth.

“We are seeing an improvement in customer shopping experience and we are seeing that translate into transaction and item growth,’’ he says.

“We saw that in June and we also saw that in July.’’

Grilled by analysts, Banducci confirmed that, yes, this translates to like-for-like volume growth and, yes, this also means increased per-shopper basket size (a weak point for the retailer).

Heartened by the performance of seven new-look stores, management has resolved to temper the extent of its planned store rollouts in favour of spending money on existing outlets.

Of the 1,000 existing stores, 17 will close while on a net basis 45 will open, but that’s a haircut on the envisaged 90 to 100 new stores.

From now on, the upper echelons at Bella Vista HQ will be measured on return on funds employed and sales per square metre.

“We are still focused on growing our network, but in a more focused manner,” Banducci says.

Investors pushed Woolies (WOW) shares $1.12 (5 per cent) higher today, in response to a return of long-lost sales momentum.

Otherwise, the rehabilitation of what’s still the country’s biggest supermarket chain remains a three- to five-year exercise.

Woolworths’ other sweeping measures include excising 500 jobs from support office and supply chain roles and taking a $309m hit on its NZ multichannel retailer EziBuy, which is profitable but not very.

Within the next month, investors should know how the retailer will dispose of the stricken Masters hardware business. While management is “still in negotiations with a range of interested parties,” anything above salvage value would be a bonus.

The Woolworths turnaround looks to be protracted and in the meantime the Wesfarmers-owned Coles won’t be sitting idly on their oversized red hands.

But at least the worst appears behind Woolies, as Banducci suggests.

The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author owns Wesfarmers and Woolworths shares.