Woolworths Case Study

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Woolworths Case Analysis
Wandeli Loubser 15301648
BACKGROUND OF WOOLWORTHS
Woolworths began life in what had been the dining room of the old Royal Hotel in Cape Town on a sunny October morning in 1931 as a clothing store and was founded by Max Sonnenberg. In 1934 Woolworths opened a second branch in Durban, followed in 1935 by branches in Port Elizabeth and Johannesburg. Shareholders who bought Woolworths stock in 1936 at 75c a share would have seen that stock grow to many, many times its original price as the Woolworths brand has become an entrenched icon in South African retail. Since 1936 the product range had expanded from clothing and shoes to include food, cosmetics, gift items, accessories, mobile phones, an extensive range of linen and home ware. Since its inception 74 years ago, the Woolworths brand has become synonymous with innovation, quality and value for money. With their wide appeal, Woolworths goods are now sold at 149 corporate stores, 51 international franchise stores throughout the rest of Africa and the Middle East and 69 South African franchise stores nationwide. TARGET MARKET

Woolworths targets customers between LSM groups 6-10 and focus more on the “30 and thriving” age group. They also cater for younger groups and have children’s’, teenagers wear, but their merchandise focus more closely on the specific group previously mentioned – male and female. FINANCIAL POSITION AND RATIOS

Woolworths Holdings is one of the top 100 companies listed on the JSE and, as a leading South African company, is committed to growth through responsible retail. Complementing this focus is a commitment to and passion for achieving and maintaining the highest standards throughout the business.

SOME OF THE CURRENT FINANCIAL RATIOS ARE:
Return on Assets
Industry Comparison10.34%

This shows us that Woolworths uses sufficient assets to generate earnings. 10% is better than the previous year, but they should work on using their assets more productively to generate more profit. Gross Margin

Industry Comparison25.9%

A gross margin of almost 26% is very good and shows that sales per month and annum are very good and increasing. Thus Woolworths has a great client base. EBITDA Margin
Industry Comparison7.38%

This figure can be shifting up, seeing that the percentage should be high enough to cover interest, tax and depreciation. Accounts Receivables Turnover
Industry Comparison61.0 x

This ratio shows that Woolworths has a unhealthy debtor balance and that debtors take way too long to pay their bills. The norm is usually 30 days and thus they should think of declining their credit.

Inventory Turnover
Industry Comparison10.4 x

Woolworths inventory turnover is very good seeing that they change inventory 10 times every year and this means inventory doesn’t stagnate. It reflects on their wide customer base. MY OPINION WHERE THEY CAN IMPROVE

Woolworths needs to increase their EBITDA by saving to the maximum on manufacturing costs. They can maybe outsource from the production in order for specialisation too take place and thus increase the figure. Asset receivables should be evaluated in the sense of looking to decrease the number of credit to customers seeing that the number of insolvencies are too high and that they take too long to pay. They should only extend credit to people above a certain income or give loyalty cards to those customers, making them feel more special that way – and purging people on to apply for loyalty cards. EXTERNAL ENVIRONMENT

When looking at the external environment of Woolworths, they compete with various participants in the market. They compete in the fashion industry, the food and beverage industry as well as the restaurant industry. Taking into account that this is all very different markets, it puts Woolworths in a class of its own for competing in each of these industries, but the question remains how effective is this done?...
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