Woolworths has admitted to major merchandising problems at Big W. Photo: Glenn Hunt
Despite Woolworths reducing supermarket prices by more than a combined $400 million over the past nine months, its customers are now spending less in their stores than a year ago.It took Woolworths five years to lose the trust of its customers. It will take as long again to regain it.
In a practical sense Woolworths has had no real management for almost a year.
The sales results for the third quarter to April 3 provided a snapshot of a company that is lowering prices at a rate of 3.5 per cent (if one backs out tobacco) and plans to put another $75 million into lower prices by the end of its financial year.
The company is making all kinds of heroic statements about turning the ship around.
For example, Woolworths says it has made "solid progress in our journey in food to get customers to put us first, with ongoing investment in the shopping experience, prices, customer service and the quality of our fruit and vegetable offer".
But the sales numbers say different. It seems Woolworths' customers are intransigent, suffer from inertia or have long memories.
Or perhaps it is just that Woolworths is bad at conveying its new low everyday prices message.
Its attempts to reshape its customer loyalty scheme has been something of a flop but again there are promises this will improve, thanks to more funding.
The jury is out until we see more progress.
Overall through, the bottom line is that Woolworths' underperformance is giving traditional rival Coles and new rival Aldi a free kick.
Both of them are continuing to pick up market share.
Woolworths' competitors are also matching or bettering the new low prices, leaving Woolworths unable to distinguish itself as the supermarket of value.
Cheaper pasta
When asked what products would spearhead everyday lower prices, Woolworths new boss Brad Banducci, nominated San Remo pasta and bakery items.
He said Woolworths was increasing the number of customers coming through the stores, but that they weren't spending enough on their basket of goods.
In so many respects, the operation and governance of Woolworths appears to be a shemozzle.
Banducci has been running things for only eight weeks, the board, including the chairman, has been largely "renewed" and the company is still attempting to clean up after the billions it torched in its failed foray into home improvement: the Masters disaster.
In a practical sense Woolworths has had no real management for almost a year, basically since the departure of the former chief executive, Grant O'Brien, was announced.
This feels like a company whose management has been distracted and will therefore need time to stabilise it.
Big problem
Woolworths now also needs to deal with the sleeper issue of reviving its discount department store business Big W – which could be otherwise described as BIG problem.
On Tuesday Banducci dropped the bomb that Big W would move into loss in the 2016 full year. Given it earned $67 million in the first half, the negative turnaround in the second half will be very large indeed.
Big W General Merchandise sales of $865 million for the third quarter decreased 4.6 per cent on the previous year. Comparable stores sales dropped 4.5 per cent, Easter adjusted.
Woolworths said Big W's comparable sales were mainly hit "by a disappointing customer response to our new season ranges, reflecting poor merchandising decisions in 2015 with no improvement in customer transactions despite cycling systems implementation issues".
Those mistakes have been compounded by unhelpful weather.
"Sales have also been impacted by ongoing clearance activity on summer ranges, slow sales of winter apparel impacted by warm weather and a highly promotional Easter period," Woolworths said
So it would appear that a writedown in Big W's inventory will be a big contributor to that loss. Big W might ultimately be a brand that Woolworths determines might not be core to its portfolio.
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