Here at home, Woolworths is facing increased competition, and even the likes of Checkers is trying to muscle in on the higher-end market.

They’ll probably weather that just fine, but the recent numbers coming out of Australia paint a very unflattering picture of some recent business decisions.

In 2014, Woolworths was confident that it would “create a leading southern hemisphere retailer”, and “become one of the top 10 global department store operators” when it purchased the Australian brand, David Jones.

That acquisition cost a cool R21,4 billion (using the exchange rate at the time), and it’s safe to say that it hasn’t gone to plan.

The numbers below via Business Insider SA:

On Thursday the South African company said it had written down the value of David Jones – again – because of “economic headwinds and the accelerating structural changes affecting the Australian retail sector as well as the performance of the business, which has fallen short of expectations”.

At current exchange rates that means Woolworths has now recorded on its books a loss of a little under R12 billion – or well over half its initial huge investment.

A R12 billion loss is a serious knock in anyone’s books, and although Woolworths continues to trade profitably in South Africa, the numbers from Down Under can’t be easily pushed aside.

Some of the headlines from local news sites are pretty damning – “David Jones nightmare worsens for Woolworths” and “Woolies bosses face heat over David Jones’ write down” stand out – with this from the latter:

“The impairment reflects the economic headwinds and the accelerating structural changes affecting the Australian retail sector as well as the performance of the business, which has fallen short of expectations. The WHL board believes that the valuation of David Jones is realistic and reflective of its prospects,” the group said. Woolies said as a result of the impairment, headline earnings a share would take a hit in the year ended June.

Damon Buss, an investment analyst at Cape Town-based Electus fund managers, said yesterday the recent impairment was the second since in 2018 and while it wasn’t a surprise, it reflected poorly on the Woolworths’ management and board, which had stated in the interim results in February that there was no need to further impair the David Jones business.

“Six months later we have to ask has David Jones performance deteriorated more or are Woolworths starting to accept that the department store model is in structural decline?”

…“Perpetual management changes and the resignation of the two Australian board members in February 2019 indicate there is a disagreement on the strategy between the David Jones management and Woolies executives.

“Woolies need to get things right at David Jones, as in its state they would struggle to sell it at current book value,” said Buss.

The Constantia Village Woolies can only prop the business up with latte and smoothie sales for so long.

[sourcse:businsidersa&iol]