O'Brien squeezes loyalties to wet Woolworths' sail

Woolworths' third-quarter sales reveal how Grant O'Brien is using customer loyalty data to generate impressive growth, and the numbers reinforce a sense the retail sector is picking up.

The sense that the retail sector has turned a corner is gathering momentum as its results flow. The gathering pace of Woolworths’ sales growth is more evidence, not just of a better environment, but that the subtle changes Grant O’Brien has made since becoming chief executive are having an increasingly discernible effect.

Woolworths’ third-quarter sales numbers are slightly distorted by the inclusion of Easter this year but even adjusted for that a 5.2 per cent increase in sales from continuing operations represents strong growth for a retailer of Woolworths’ scale and diversity.

Most significantly, the group’s core food and liquor businesses generated sales growth of 5.6 per cent, or 4.9 per cent Easter-adjusted and comparable stores growth of 3.8 per cent (3.1 per cent Easter-adjusted).

That latter number would suggest that O’Brien’s focus on using the insights provided by the data accumulated within the group’s loyalty programs to increase sales from its existing vast customer base – more than 20 million customers pass through its stores’ doors a week – through very targeted offers is having a compounding and quite powerful effect.

Since he became chief executive nearly 18 months ago O’Brien has presided over a string of small but steady and increasing improvements in Woolworths’ metrics and the third quarter sales numbers are clearly the best of his tenure. When he became chief executive officer the group’s comparable stores sales growth trend was one of decline.

It is also notable that Big W, which operates in the still-difficult general merchandise segment, is also stabilising. Its third-quarter sales were up 3.4 per cent, albeit down 0.8 per cent on a comparable stores and Easter-adjusted basis.

The ‘’home entertainment’’ category remains the most difficult retail segment, impacted by the strength of the Australian dollar and price deflation, the growth of online retailing and torrid competition. Excluding the category, Woolworths says Big W’s adjusted comparable store sales growth was positive despite estimated price deflation of 3.1 per cent. Given the upheaval in the segment created by the remarkable success of Kmart’s disruptive model of deeply discounting a relatively narrow range of products, the restructuring of Target that is still underway and a lot of price promotions from Myer any growth in comparable stores sales would be a respectable outcome.

While focusing on improving the productivity of his existing portfolio of stores, O’Brien is maintaining an aggressive new-store opening and refurbishment program. Four new supermarkets opened in the quarter with another 13 planned for the final quarter of the year. Forty-seven of the group’s supermarkets were refurbished.

The expansion into hardware is also gathering momentum, with sales up 37.4 per cent to $290 million and 29 stores now trading. O’Brien described conditions in the trade segment as "challenging" he also said the group remained pleased by the progress its Masters business is making.

Woolworths and its joint venture partner Lowe’s of the US are still well short of critical mass – the goal is to eventually operate about 150 stores – and a long way off profitability in the category but the sales numbers are becoming increasingly meaningful.

The other noteworthy aspect of the sales numbers (apart from the acquisition-driven 19.7 per cent growth in sales from Woolworths’ hotels business) was a 36 per cent increase in online sales from continuing operations.

While the actual numbers are inevitably going to be small in the context of Woolworths overall size the group is putting considerable effort and resources into building an online presence and again leveraging off the data it has on customer behaviour and preferences. 

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