Woolworths’ financial services book reflects a year-on-year increase of 17.2% to the end of December 2022, driven by improved consumer spend, as well as new business and credit card advances.

The annualised impairment rate, which refers to the level of bad debt, plus provisioning for bad debt, was 5.5% for the period. As a rule of thumb, the lower the ratio, the healthier the book. A Woolworths spokesperson told Business Maverick that the ratio was “pretty industry-leading; our apparel peers typically have ratios in the double-digits.”

Soaring inflation and economic pressures are taking their toll on South African consumers. For all of 2022, inflation averaged 6.9%, 2.4 percentage points higher than the 4.5% average in 2021 and its highest annual average since 2009, when it was 7.1%.

According to research conducted by credit bureau TransUnion at the beginning of November 2022, two in three consumers (67%) have cut their discretionary spending in the past three months — but even with these cutbacks, at least one in three consumers (38%) is unable to pay any of their bills and loans in full.

Credit access

Weihan Sun, director of research and consulting at TransUnion Africa, says a continued high inflationary environment coupled with more anticipated interest rate hikes was likely to tip more consumers into default, with severe repercussions for the local retail sector. The survey further revealed that as many as 92% of consumers felt access to credit was essential, while 42% believed they couldn’t access enough credit.

Economist Lara Hodes of Investec Bank notes that the retail sector remains subdued despite consumers taking advantage of discounted goods and services in November. “Indeed, retailers’ confidence fell notably in the fourth quarter of 2022 from 51% to 42% according to the Bureau of Economic Research retail survey,” she says.

Woolworths’ group turnover and concession sales for the half-year increased by 18.5% compared to the half-year to December. During the last six weeks of the period, which is directly comparable to the prior period, group turnover and concession sales increased by 8.8%, underpinned by strong Black Friday and festive season trade.

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The return of customers to physical stores, particularly in Australia, which had seen several lockdowns, resulted in a substantial increase in brick-and-mortar sales, with the contribution of online sales moderating to 10.9% of total turnover and concession sales, compared with 13.7% the year before.

In southern Africa, the turnaround strategy in the fashion, beauty and home segments continues to gain traction with turnover and concession sales growing 11% on a comparable store basis.

Price movement of 10.8% remained positively impacted by the ongoing focus on full-price sales and the continued reduction in markdowns. Trading space was further reduced by 2.2% over the prior period. Online sales grew by 4.5% and contributed 4.2% of South African sales.

The more popular food business grew turnover and concession sales by 7.6% and 5.4% on a comparable store basis, with sales growth accelerating to 8.6% in the last six weeks of the period.

Rolling blackouts

Management noted that said growth was despite the “considerable disruption caused by load shedding, which continues to have a pronounced impact on the predominantly fresh business in terms of foregone sales, and increased waste.” Chief executive Roy Bagattini adds that the group also incurs a significant increase in diesel costs to enable trade during the extended power outages. Hodes agreed, saying heightened rolling blackouts continue to impede retailers’ ability to operate optimally, with maintenance commitments, vandalism and plant breakdowns affecting generation capacity.

Liz Hillock, director of online and mobile at Woolworths, says more than 70% of online food sales now emanate from the Woolworths App. Price movement in the food business increased to 6.8% for the 26 weeks period, below underlying product inflation of 8.4%. Space grew by 2.5% relative to the prior period.

Online sales increased by 22.7%, contributing 3.6% of total South African sales, as the group’s new on-demand offering, Woolies Dash continues to grow. The offering was expanded to coastal towns including Langebaan, Simon’s Town, Mossel Bay, George, Knysna, Plettenberg Bay, Jeffreys Bay, Margate and Richards Bay in December.

Problem child David Jones’ turnover grew by 31.8% although Woolworths revealed in December that it would sell David Jones to Anchorage Capital Partners, an Australian private-equity firm, for an undisclosed amount. The company expects the transaction to be finalised as soon as the end of March and “expects to realise value in excess of the carrying value of the David Jones assets”. BM/DM