OBG talks to Ian Moir, CEO, Woolworths

Ian Moir, CEO, Woolworths

Interview: Ian Moir

To what extent can retail spend be used as a barometer for the overall state of the economy?

IAN MOIR: As in most countries, there is a direct connection between the health of the economy, consumer confidence and retail spend. At the height of the global financial crisis, our customers were impacted quite badly. However, this has to be considered in the context of who our customers are, as they mostly constitute the higher-income brackets – a group which at the time was highly leveraged and facing a double whammy of rising prices and rising interest rates. The market is performing relatively better than expected. This can probably be attributed to the fact that interest rates, which are a significant factor in affecting the psyche of our customers, have been kept low. In addition to historically low and stable interest rates, South Africa is a commodity- and resources-based economy. Resources, while experiencing ups and downs, are for the most part generating income growth. The equities market has outperformed or at least suffered less than other markets. We are not as a country experiencing a softening of spending on food and clothing.

What are some of the emerging retail trends you are noticing in South Africa?

MOIR: While South Africa’s retail offering is quite mature and sophisticated, two trends which I see as being in their infancy are loyalty cards and online shopping. Loyalty cards not only generate greater customer affinity, but valuable information to better understand your customer and customise your marketing accordingly. Customer insight and behavioural analysis is not at the level one sees in Europe. Online retailing is virtually non-existent as a big impediment has been the speed of broadband – which can only improve over time.

Due to apartheid, for a long time the South African market was relatively isolated, and with the internet and more exposure to what’s happening elsewhere, we are observing the demand and insistence for new fashions increasing each year. We used to have enormous success repeating a style from the year before. But customers today will not accept this as they are more aware of global trends and are far more demanding.

How much room is there for further international entrants into the sector?

MOIR: The barriers to entry are quite high. To face 45% duties while competing on price with incumbents is not easy, especially as the size of the market is relatively small. South Africa is not a country that is easy to operate in and presents challenges that many European and North American retailers are not used to in their home markets, especially when it comes to managing labour. So unless you come in through a merger or acquisition, the way Wal-Mart has, most retailers who enter via a greenfield will be doing so more as an African, than a purely South African player. To open up enough stores to achieve the required scale to manage margins to turn a significant profit and advance through the learning curve will be extremely challenging.

What factors must retailers take into consideration when expanding to the rest of the continent?

MOIR: It is imperative for any retailer to be in control of its business model and intensely manage its brand anywhere they expand, but in Africa even more so. One needs to establish the right perception of their brand from day one, as recovering a brand position is extremely difficult. Africa should be considered a long-term play, and even though it is set to account for only around 10% of our turnover in the coming years, over time it is a major opportunity and justifies the investment. If you do not enter these markets early on, the barriers to entry will only increase over time. For the time being, we are focusing only on the clothing side of the business in Africa, as it is an absolute nightmare transporting food north of the border, especially in terms of managing quality control. As we expand our presence and new opportunities open up, we will look at securing local food supply and moving into produce.

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The Report: South Africa 2012

Retail chapter from The Report: South Africa 2012

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