Woolworths Limited (ASX: WOW) is Australia's leading retailer and Fairfax Media Limited (ASX: FXJ) is Australia's leading media company. Over the last several years, the rise of new competition has adversely affected their businesses. Today, they are facing strong head winds that are challenging their business models.
Woolworth has witnessed a decline in its market share as aggressive price discounting by its major competitor, Coles, has taken customers away from it. The German discount price chain Aldi, which opened its first store in Australia in 2001, and now has 373 stores Australia-wide, is also stealing customers from Woolworths.
A successful American warehouse chain, Costco Wholesale, another discount retailer is quietly taking market share from Woolworths. Costco is relatively small compared to Coles and Aldi, but with six stores already in operation and more in the pipeline, it is increasingly attracting customers through its doors. And then there are rumours that German discount price chain Lidl is planning to open soon in Australia.
A price-conscious customer base shifting towards competitors is clearly indicating that Woolworth's existing strategy has failed to subdue competition from eating into its market share. On June 17, 2015, the chief executive officer of Woolworths resigned, citing disappointing business performance.
Fairfax Media is facing an even more serious situation. The advertising revenue over the years has shifted from print media to digital media. The success of high speed internet, tablets, widescreen mobile phones and online news websites has changed consumer habits. Increasingly consumers are relying on digital media for news and information; consequently fewer people are buying paper newspapers.
This has resulted in Fairfax Media shutting down and selling out of its massive $600 million printing facilities in Chullora and Tullamarine. It has cut the number of employees by 26% and advertising revenue from the print business is now only contributing a mere 34% to the total revenue. The 180-year-old company was slow in accepting the rise of digital media, but has since made drastic changes to its business model.
Fairfax Media already has under its ownership several digital media businesses and is now heavily investing in building its capabilities. A rising star among those digital businesses is the property listing website Domain Group. Over the past three years, Domain's digital revenue has increased by 99%. In January Fairfax Media launched Stan, a streaming-video-on-demand joint venture with Nine Entertainment Co.
Foolish takeaway
Both Woolworths and Fairfax Media are well recognised and highly reputed businesses, but facing some serious challenges. They are adjusting their strategies to overcome the hurdles regarding their business performance. In my opinion, a prudent investor should consider investing in these two companies only after it has been proven through financial metrics that their new strategies are successful.
