Woolworths caught in its own spiral of consumer debt and high prices
November 27, 2007
I would like to speculate on the article, "Retail strain is showing at Woolworths" (Business Report, November 23).
For some years now I have been amazed by the large number of people using their in-house credit card when buying food at Woolworths. On a number of occasions I have quizzed checkout staff and they confirm that many of their shoppers use the card to pay for food. This flies in the face of a sound lending principle, which says that you should never buy food on credit because this is a sure road to financial distress.
Woolworths is now faced with a situation where many of these cards are maxed out and, as a result, the card holders are struggling to meet their monthly instalments, causing the reported rise in bad debts. These same shoppers can no longer use their Woolies card, so they have moved to cheaper stores, resulting in a decline in turnover at Woolies.
To counter this drop in sales and rising bad debts, Woolies has reviewed its pricing and the cost of its food product has risen sharply.
Cash shoppers like me are now shopping elsewhere because I am not going to cross-subsidise all the defaulting Woolies card holders.
Could it be that the Woolies business model is a major contributor to food price inflation?
Anton Kleinschmidt
Rondebosch
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