Woolworths Partners With BP, Cuts Space to Revive Australia

(Bloomberg) -- Woolworths Holdings Ltd. is striving to turn around its struggling Australian business by reducing floor space, refurbishing a flagship Sydney store and partnering with BP Plc gas stations.

The South African upmarket food and clothing retailer has been forced twice to write down the value of the David Jones department-store business, which it bought in 2014 to expand across the southern hemisphere. Sales at the division continued to decline in the year through June, dragging down the business as a whole.

“David Jones has cost us a lot and been disappointing,” Chief Executive Officer Ian Moir told analysts at a Woolworths store in Cape Town on Thursday. “But we are coming through the end of that.”

A key element to the revival is to focus on the upper end of the market -- a strategy that’s worked in South Africa. David Jones is also renegotiating store leases and cutting down on floor space, Moir said. The target is to have 20% less retail space by 2026.

Gas Stations

A major refurbishment of David Jones’s flagship store on Sydney’s Elizabeth Street is another key plank, and should be complete by March, Moir said. The project has cost A$400 million ($270 million) -- half from Woolworths and 50% contributed by retail partners.

The partnership with BP -- in which David Jones-branded food will be sold at the gas stations -- replicates a similar deal with Engen Petroleum Ltd. in South Africa. David Jones is also developing a food offering in its stores, but this is still at the trial stage and won’t break even for 18 months.

There’s still plenty of work to do, Moir said, and the CEO will spend the bulk of his time in Australia over the next year. He took a hands-on role at David Jones in February after the departure of the third head of the division in five years.

Woolworths shares rose as much as 5.7% in Johannesburg as the market shrugged off an earlier statement reporting falling earnings and a dividend cut. The South Africa business has been resilient even as consumer confidence in that country has floundered, with sales growth in both clothing and food increasing in the second half from the first.

The stock has declined by about 40% over the past four years as the company has coped with David Jones, though it’s outperforming the FTSE/JSE Africa General Retailers Index this year.

To contact the reporter on this story: John Bowker in Johannesburg at jbowker2@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, John Lauerman

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