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Woolies’ latest secret weapon

The Aussie supermarket wars just got a little crazier, with Woolworths (ASX: WOW) announcing its latest secret weapon to lure shoppers away from rival Coles.

What could it be? Perhaps another iteration of ultra-cheap staples, like $1 bread or $1-per-litre milk? In fact, it’s makeup and makeovers.

WOW, what a great idea

Woolworths will soon be offering skin consultations, cosmetics advice and mini-manicures in stores nationwide. As Alex Dower, Woolies’ grocery general manager, says, “We’re keen to get different experiences every week, so one week we may specialise in a nail polish salon, the next week you could get eyes or lips and rotate through different areas of cosmetics after that.”

Not only does this push into cosmetics and beauty challenge Coles, owned by Wesfarmers (ASX: WES), it’s also a fairly direct challenge to traditional cosmetics retailers such as department stores operators David Jones (ASX: DJS) and Myer (ASX: MYR).

There’s no mistaking a Woolies store for a David Jones, of course. But while some consumers may be at least initially reluctant to pick up BB cream and get their nails done just before they shop for butter and tomato sauce, the convenience of Woolies’ offering seems likely to woo the time-starved.

Capturing a possible $2 billion 

In all, it’s a deft move by Woolies. Australian women already spend some $2 billion annually on cosmetics and personal care items, according to data compiled by Ibisworld, and this expenditure grows each year by 2% to 3%. And not only is the market large. It also tends to be highly profitable. Cosmetics and skincare products typically carry high margins for both manufacturers and retailers.

That’s not to say investors need to get excited about WOW shares on this news. With annual sales of $55 billion plus, it would take quite a number of mini-manicures and jars of moisturizer to move the needle for this giant.

What’s more, the dramatic run-up in the ASX 50 in recent months has many of the ASX “blue chips” like Woolworths and rival Wesfarmers trading for truly eye-popping valuations, with some commentators effectively saying all the easy money has been made.

That’s why some savvy investors are seeking opportunity in smaller companies, in corners of the market that have been totally left behind by the “great rotation” back into equities. Looking for some a few fantastic small-cap ASX ideas? Discover two under-the-radar opportunities now, including names, codes, and a full investment analysis. Simply click here to download your FREE copy.

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Catherine Baab-Muguira does not own shares in any of the companies mentioned in this article.

 

 

 

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