Site Map   Help   

The Woolworths Museum logo(click for the home page)

 

2000's Overview: Fall and renaissance of a retail icon

 

A new store for a new millennium - a dominant two floor Woolworths in Gateshead's Metro Centre

Woolworths went into the third millennium profitable and confident. The parent company, Kingfisher, had drawn on the chain's management expertise to oversee a series of Group initiatives.

Big W realised a longstanding ambition for the CEO, Sir Geoffrey Mulcahy. For the first time all of the Group's major UK retail brands appeared under one roof in a chain of huge out-of-town superstores.

Woolworths General Store drew general merchandise from Woolworths and health and beauty from Superdrug, topped up with food, wines and cigarettes from Booker, creating an American-style convenience drugstore like Walgreen.

Kingstore was a new EPOS till system developed for the Group. In parallel the chain was also leading e-Kingfisher's move into e-commerce, with a comprehensive multi-channel offer, backed by an alliance with Freemans.

 

The emerging news of Woolworths' demerger from Kingfisher whipped the media into a frenzy

But all was not well at Kingfisher. A planned merger with Asda had collapsed, leaving the management looking inept. The expensive, high profile failure had led analysts to question the Group's acquisitive strategy, as a long spell of rapid profit growth slowed down.They demanded change.

To quell the criticism the CEO had reluctantly agreed to split the in-town and out-of-town divisions of the Group. The break-up was ugly as Kingfisher sought to maximise its revenue. It hoped to find a buyer for 'GM plc', but ultimately sold Superdrug privately and demerged the rest. To turn a profit, the new Group was stripped of its property assets, saddled with debt at short-term rates, and tied into unfavourable long-term leases for its stores.

By the time Woolworths Group plc emerged, it had endured a year in limbo and was on its second Chairman, Finance Director and CEO. At the helm was Gerald Corbett, who had stood his ground throughout the acrimonious separation process, and had warned the City that the Group would need time to recover before returning to profit.

 

A short-lived American drugstore format, Woolworths General Store, was opened in collaboration with Superdrug. The Chiswick store is pictured in 2001The first year after demerger was spent undoing many of the initiatives inherited from Kingfisher. Corbett did not agree with the move into new channels. He severed the Freemans relationship, closed the warehouse and laid off the staff, writing everything off with a £10m exceptional charge.

He felt the out-of-town Big W chain was unviable without the rest of the former parent company. B&Q had other priorities and Superdrug had been sold to Kruidvat. Opening plans were scaled back.

General Store also seemed untenable without Superdrug. Temporary arrangements were made to source toiletries, but in the long term the stores would have to be closed or return to the traditional format.

Corbett had to select a CEO. The demerger prospectus had highlighted the strength of the established management and particularly the three MDs at Woolworths. None was deemed suitable. Instead an outsider, Trevor Bish-Jones, was hired. Within a year the three MDs had departed, along witih forty of the top fifty senior executives.

 

The original Senior Management of Woolworths Group plc in 2002, from left to right Gerald Corbett, Trevor Bish-Jones and Christopher Rogers

Despite the exodus, and the withdrawal of virtually every initiative mentioned in the demerger prospectus, the new management team got a friendly reception from the City. The Chairman, Gerald Corbett, and Group FD, Christopher Rogers, were able to renegotiate the new Group's financing, while the new CEO Trevor Bish-Jones developed a strategy for his new empire.

 

'Don't forget Debbie', a poster used to remind buyers and executives of the new core customer at Woolworths from 2002 until the demise of the store chain in 2008The CEO instituted the most radical changes in 93 years. He targeted young families, dropping the 'everday store for everyone' approach. He called the new formula 'Kids and Celebrations'. It gave more space to Toys, Clothing, Cards and Entertainment and scaled back the offer for the Home and Garden. Products were more aspirational, as prices and margins rose. Rather than follow the wisdom of the 90s, he began with the largest stores.

Christopher Rogers was appointed Chairman of the Entertainment Division, tasked with increasing the profit generated by the wholesale and publishing subsidiaries. He also sought a strategy for the 88 MVC music shops.

Early trading results in trials of the new large Woolworths stores were good. Sales rose by over 10% and the profit margin rose by 1.5%. A roll-out was agreed. Almost 200 of the largest branches were upgraded over three years. The Board also continued to invest in new tills and an initiative to switch to the SAP Retail enterprise system. Spend topped £200m, building a strong foundation to sustain the High Street stores for twenty years to come.

By 2004 results looked good. The Group FD had hit the headlines after facilitating a joint venture between the VCI Group publishing subsidiary and BBC Worldwide. 2|Entertain was considered a true win-win and became a big profit generator. Rogers was later headhunted by Whitbread.

In Spring 2005, Apax Partners explored a buyout. The tentative bid was double the firm's share value at demerger, but was inexplicably withdrawn at the eleventh hour. The full reasoning was never explained.

 

Woolworths Group's Entertainment Division included Europe's largest CD and DVD wholesaler, Entertainment UK, and, until 2005 an 88 strong chain of specialist Music and Video shops, MVC

After Rogers left, the CEO led the Entertainment Division personally. He was convinced it had untapped potential. It proved to be a minefield.

After failing to find a formula for MVC within the Group, it was sold. Weeks later the new owner collapsed into Administration, leaving the bulk of its debts for stock unpaid. Woolworths Group had to take the loss.

A high proportion of profits came from Entertainment UK's wholesaling. Its success mirrored progress at its biggest client, Tesco. The supermarket insisted on ever-smaller margins, until ultimately it decided to take the supply of CDs and DVDs in-house. This worried investors and forced Bish-Jones to plug the gap. He wooed new big names with competitive terms, but also had to offer a line of credit. This put pressure on Group cash flow.

The CEO kept faith with Entertainment. He assured investors that, despite the market entering free-fall and retailers dropping prices to compete, the Group's operations were 'world class'. He planned to strengthen the Division by adding Console Games, Software and Books to the wholesale mix. The Group paid cash for two leading players, Bertrams Books Ltd and Total Home Entertainment, further depleting the cash reserves.

In retrospect the Group became too dependent on Entertainment products. The 2|Entertain publishing venture grew by building new markets overseas, but Woolworths had long relied on CD and DVD sales for survival, with an annual turnover of £300m a year. More than 80% of the throughput of EUK was also music and video, much of it destined for the High Street stores.

 

Smaller Woolworth stores like Bexhill-on-Sea in Sussex had traditionally contributed the lion's share of company profits. Cutbacks left the buildings looking shabby and unloved

There were also problems closer to home. The move upmarket opened the door for discounters including the pound shops and Wilkinsons to undercut Woolworths' reputation for value. It also narrowed the appeal of the brand, as shoppers could no longer rely on the High Street stores for cheap homewares, DIY and repair products, or basic essentials like Dish Mops and Tights. Between 2002 and 2007 the number of weekly visitors to the stores fell by two million.

Trade was also lost to the big supermarkets. They were attracted to the higher margins of general merchandise, and targeted the same markets that Woolworths had chosen. They competed strongly on price, forcing the High Street chain to accept lower margins on many core ranges, including school clothing, stationery, entertainment and even pic'n'mix.

As sales and traffic numbers fell, a package of economy measures was pushed through. Maintenance budgets in the stores were cut, meaning that the more profitable, smaller stores, which had not received attention since the 1990s, started to look shabby and unloved.

 

Multiple Channel Retail, through in-store ordering and a catalogue called the Big Red Book became a key strategy for the revival of Woolworths from 2005 onwardsThe CEO's solution for the small stores was very fashionable and met with approval from city analysts and institutional investors. He planned a major move on-line, backed by a big book catalogue, which would make a much wider range available to order in every store. He believed that the chain's geographic spread gave it the potential to offer a unique in-store collection service, which would be handy for customers, saving them a trip into town.

The strategy was costly, requiring investment in similar systems and infrastructure to those written off after the demerger from Kingfisher. It had good prospects in the medium to long term, but did little to arrest the immediate decline. The product range proved appealing, generating sales of over £70m in 2007. But it was not profitable. The costs of multi-channel retailing contributed to the first full year loss in almost a century.

Changes to the cost-base as the Group expanded its wholesale division and sought to reposition Woolworths prompted the Board to negotiate for new financing. The CEO led discussions with the banks. He found plenty of takers for a proposed asset-based lending approach. In Spring 2008 he thought that he had bought the Group four years to sort itself out.

 

Newcomers to the Woolworths Group Board: Tony Page (Commercial MD), Richard North (Chairman) and Steve Johnson (CEO)

The share price tumbled between 2005 and 2008. This prompted a series of high profile Board appointments. In 2007 the Chairman, Gerald Corbett, invited Tony Page from Asda to join Woolworths as Commercial MD. The press considered the new man to be quite a catch. Page worked hard to restore the reputation for value and to improve availability. He introduced a new low entry price point range called WorthIt!, which soon began to win back large numbers of shoppers. Sales quickly grew to £1 million a week.

Corbett stepped down after seven years. The hard-hitter was replaced by Richard North of Intercontinental Hotels. North led a major strategic review leading to a major change in direction. He argued that the CEO's recovery strategy was not working, and Woolworths should abandon its Big Red Book and concentrate on improving its smaller stores and move back down market. This heralded the departure of Bish-Jones after six and a half years.

North hired Steve Johnson as CEO. He had made his name at Focus DIY. After two years he had sold the business to a private equity group for £1.

 

The shortest-lived Woolworths of all - Bitterne, Southampton, which opened just a fortnight before the chain collapsed into Administration

Whatever the rights and wrongs of the changes, they angeredinvestors and those who had recently agreed to provide financing.. City analysts held the former CEO Trevor Bish-Jones in high regard, and believed he had tried everything and come up with the best plan to sustain the brand.

The consortium of banks behind the asset-based lending agreement felt betrayed that they had been sold a strategy that would not be implemented. They wondered if they had been deliberately misled. The credit insurers who underwrote the Group's purchases, feared the brand was vulnerable to a downturn, as the credit crunch started to bite.

Credit cover was withdrawn, and the bankers refused to authorise further loans, insisting on repayment. Frantic negotiations failed to find a solution. Forty-one days after Steve Johnson took over, the Group collapsed into Administration. Despite many expressions of interest in the High Street Stores and the Entertainment Division, no bidder could find the required funds quickly. After just four weeks an orderly shutdown began. By 9 January 2009 every store in the ninety-nine year old chain had closed.

 

The Wallington, Surrey Woolworths closes after seventy-three years' service. Like many branches it had contributed a net profit of over 10% in every single year of trading.

 

Woolworths was reborn as a major internet brand, thanks to the rescue by Shop Direct Group.

Just when it seemed that Woolworths was gone for good, and after the Chad Valley Toy Brand had been sold to the Argos parent Home Retail Group for £5m, the Administrator, Deloitte LLP, announced that they had found a purchaser for both the Ladybird clothing name and the Woolworths brand. The industry-leading Shop Direct Group, the name behind many of Britain's best web brands, including Littlewoods, Empire Stores and Marshall Ward, planned to take Woolworths on-line and to revive the name with a world-class website.

By the hundredth anniversary in Britain, it was up and running again on-line. As at the start of the story, Woolies was based in Liverpool, with an ultra-low cost base and a dynamic management team. Shop Direct Group has the skills and the resolve to make the second century of trading every bit as exciting as the first. The Woolworths Museum wishes them well. It's a great brand, with a proud history and a tradition of value that's well worth saving. If you've not visited the new on-line Woolworths yet - give it a go!

If only they would chance their arm in the High Street once again!