2016 has not been kind to investors in Woolworths Limited (ASX: WOW). The retailer's shares have fallen by 13% and the investment community has shown little (if any) indication that it is getting excited about the company's future. That's unsurprising since Woolworths has a challenging outlook, with lower cost retail alternatives proving popular and the company's financial outlook being uncertain.
Although turning Woolworths around will be a major operation, here are four things that I would do to try and do just that.
Core/Non-Core
One of the simplest things that any business can do is to focus on its core offering. In other words, during difficult times, return to what made the company successful in the first place.
In Woolworths' case, it has become more diversified over the years and now owns hotels and a home improvement store chain. While this diversity de-risks its operations in theory, in practice it means a less efficient business model which may be less profitable. By selling off such non-core assets, Woolworths would not only raise funds to reinvest in its core operations, but could also become a more appealing investment opportunity.
Customer Services
With discount stores becoming increasingly popular, Woolworths needs to differentiate itself from the competition. Cutting prices and hoping that customers will remain loyal may cause sales to hold up, but profitability will inevitably be hurt by lower margins.
As well as enviable locations, Woolworths can also differentiate itself in terms of customer service. A larger number of helpful staff could create customer loyalty and allow Woolworths to maintain higher prices than it otherwise would be able to. While this will mean initial and ongoing investment, in the long run it could provide a major boost to the company's bottom line.
Pricing
Cutting prices is unlikely to be helpful to Woolworths' long term profitability. However, it needs to remain competitive on pricing, or else it will lose custom to cheaper alternatives.
One option which may prove tempting is to have a multitude of offers such as 'buy one, get one free' etc, which may appeal to shoppers seeking out good value products. However, the reality is that such promotions can prove tiresome and disengage loyal customers who lose patience with trying to find the best deal. Therefore, a renewed focus on a simpler pricing structure which focuses on everyday low prices may resonate the most with Woolworths' customers.
Efficiencies
As well as selling-off non-core operations, Woolworths should be able to generate additional efficiencies from its supply chain and from other cost-cutting measures. For example, it may seek to reduce the range of products on offer to provide a leaner supply chain, as well as create more space in-store through which to generate higher volume sales.
