Picture: REUTERS
Picture: REUTERS

Woolworths is battling a tough economic environment in both Australia and SA, putting pressure on sales.

After posting its trading update, which showed a 2.6% growth in overall sales, the group’s share price declined as much as 5% before recovering to close 2.41% lower at R53.75.

Woolworths has three operating subsidiaries — Country Road Group, Woolworths and David Jones, which was acquired in 2014 for R23.3bn.

Its David Jones sales declined by 5.3% in the 20 weeks ended November 12, the group said.

The company was struggling because of its “questionable business model”, Vele Asset Managers equity analyst Matthew Zunckel said.

Consumers globally were trending towards online and specialty retail, yet David Jones remained a department store, Zunckel said.

The management of Woolworths could tweak this over time with the introduction of food, but that would take a lot of time and investment, he said.

In Australia, the group opened eight new Politix locations within David Jones stores and said it was “seeing positive results from this initiative”.

However, Zunckel said it was a matter of concern that Woolworths continued to grow space quite aggressively despite significant volume pressure.

The company fared slightly better in the local market. On Wednesday, Statistics SA reported that retail sales were up 1.4% in the third quarter from the second, while retail trade sales had increased 5.4% in September from a year earlier, to R74.12bn.

The food division grew sales “ahead of the market” by 9.3%, double its internal inflation of 4.5%, the retailer said, with sales in fashion, beauty and home division slightly up by 0.7%. Zunckel warned that it could be losing market share in SA as the clothing performance was quite disappointing and the retailer did not seem to be benefiting from the recent uptick in apparel retail sales.

gumedem@businesslive.co.za

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