Woolies shops in Australia

Woolworths is throwing money Down Under, a market in which its South African rival Pick n Pay has struggled.

Whereas Pick n Pay tried the Australian food retail market, Woolies is going for department stores, agreeing to buy David Jones (DJs) for R22-billion. It is a market also targeted by global rivals, including Inditex and Hennes & Mauritz.

DJs' shares rose by a record 23% yesterday to close at A$3.91 in Sydney, below the A$4 cash offer a share.

Woolies muscled out another Australian-listed department store, the Myer Group, which had its eye on DJs. Myer made an all-stock, zero-premium merger proposal in October when DJs was trading at less than A$3.

Buying the 38-outlet Australian chain increases Woolworths' presence in a country Credit Suisse says is the world's second-wealthiest. The deal also gives the retailer buying power to compete against global fast-fashion groups such as Zara, H&M and Arcadia Group's Topshop, which are expanding into South Africa and Australia.

"Those chains are in a global arms race to open new stores now," Caroline Finch, a senior analyst at Ibisworld in Melbourne, said.

Retailers in both Australia and South Africa had to work harder, she said, because "the H&Ms and Zaras of this world have been nipping at their heels, taking the attention of a very fashion-focused consumer".

"We're buying this business to build a bigger southern hemisphere brand," Woolworths CEO Ian Moir said in Sydney yesterday. "We've got real scale in the southern hemisphere, we've got the same seasonality, so we've got a real competitive advantage over northern hemisphere entrants."