One thing Woolworths can learn from Shoprite Checkers

Wayne McCurrie from FNB Wealth and Investments said Shoprite’s decision to sell its furniture business should be a lesson to Woolworths.

This week, Shoprite announced that it had signed an agreement to dispose of its furniture business, including the OK Furniture and House & Home brands.

Shoprite is selling more than 400 furniture stores in South Africa, Botswana, Lesotho, Namibia, Eswatini and Zambia, to Pepkor for R3 billion.

Pepkor’s JD Group business recently rebranded to Pepkor Lifestyle, and it operates more than 900 retail stores in the same countries.

It has strong capabilities in supply chain, logistics, and financial services. Combining Shoprite Furniture with Pepkor Lifestyle will enable key synergies.

The deal makes sense for Pepkor Lifestyle, which will expand its customer base and retail footprint while integrating Shoprite Furniture operations into its existing logistics network.

Shoprite CEO Pieter Engelbrecht explained that selling their furniture business, including the OK Furniture and House & Home brands, also makes sense to them.

Engelbrecht explained that it found itself at a crossroads with its furniture business’s future growth and profitability.

It was hamstrung by investment needs that required Shoprite to redirect capital and project management resources away from its food retail operations.

Shoprite, which owns Checkers and Usave, is primarily a food retailer. It has deep expertise in this field and generates most of its revenue from food.

The furniture business did not contribute much to the Shoprite Group and was diverting attention away from its core business.

McCurrie explained that Shoprite’s furniture business was small compared to its food business, without the prospect of big profits.

“This is not a thriving operation. It is clearly not making big money because Pepkor is paying next to nothing for hundreds of stores,” he said.

He told Business Day TV Woolworths can learn from Shoprite. “They are not good at selling furniture, so they simply get rid of that business. They are sticking to what they know,” McCurrie said.

Woolworths – food versus health and beauty

Woolworths released its audited results for the 53 weeks that ended on 30 June 2024, which was a mixed bag.

The group’s turnover and concession sales from continuing operations, excluding David Jones in the prior period, grew by 4.3% in a comparable 52-week period.

Woolworths’ food business demonstrated its strength and resilience. Turnover and concession sales grew by 9.0% and by 6.9% on a comparable store basis.

Woolworths’ fashion, beauty and home business turnover and concession sales declined by 0.4% in a comparable 52-week period. It declined by 1.3% on a comparable store basis.

Woolworths’ international operations, the Country Road Group, which operates in Australia and New Zealand, performed poorly.

On a comparable 52-week period, sales declined by 8.0% and by 13.1% in comparable stores, following the double-digit decline in retail foot traffic.

“Woolworths Food is doing well, but everything else is poor. They must do what a few companies have done – split the business,” McCurrie said.

He said Woolworths’ results showed what they had seen many times before. The food business did well, but the fashion and beauty businesses in South Africa were mediocre.

He added that New Zealand and Australia’s Country Road fashion and accessories business was a catastrophe.

McCurrie explained that Woolworths is wasting time and money on the non-food side of the business.

David Shapiro from Sasfin Securities said Woolworths’ fashion business has many challenges, including the right inventory to serve clients.

He said this is particularly prevalent with smaller Woolworths shops, raising the question of why they have clothing in these stores.

“Woolworths has to re-think their strategy, particularly in areas where they compete with other fashion retailers,” Shapiro said.