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

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 that had been 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.

But all was not well at Kingfisher. A planned merger with Asda had collapsed, leaving the management looking inept. The high profile, expensive failure had prompted analysts to question the Group's acquisitive strategy, following a slow down in its long track record of profit-generation. They demanded a shake-up.

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 an approach which would maximise revenue. It hoped to find a buyer for 'GM plc', but ultimately sold Superdrug privately and demerged the rest. To turn a profit on the split, the new firm 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, and its second Finance Director. It had already lost its first CEO. At the helm was Gerald Corbett, who had fought Kingfisher at each stage of an acrimonious separation process, and had warned the City that the Group would need time to recover before returning to profit.

The first year after demerger was spent undoing most 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. The systems were also written off. The exit led to a £10m exceptional charge.

The out-of-town Big W chain also appeared unviable after the Group split for Kingfisher. B&Q had other priorities and Superdrug had been sold to Kruidvat. Where possible opening plans were shelved as the format was scaled back.

General Store was also untenable following the split from Superdrug. Temporary arrangements were made to source toiletries, but in the long term the stores would have to be closed or re-integrated into the main Woolworths chain.

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 twelve months the three MDs had departed and forty of the top fifty senior executives had chosen to leave to pursue careers elsewhere.

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.

The CEO instituted the most radical changes in the chain's 93 years. He decided to target 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. The new range was more aspirational, as prices and margins went up.
Unlike the 90s approach, controversially he planned to start with the large stores.

Christopher Rogers was appointed Chairman of the Group's Entertainment Division, and 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. In total almost 200 of the largest branches were upgraded over a three year period. The Board also continued to invest in the Kingstore till system and to implement the SAP Retail enterprise system. Capital expenditure on stores and systems topped £200m. It laid a foundation for use over the next twenty years.

By 2004 it appeared that Woolworths Group was on the road to recovery. 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 headhunted by Whitbread shortly before Christmas.

As Rogers was preparing to go in Spring 2005, the Group was approached by Apax Partners about a buyout. The bid valued the firm at twice the price after demerger. The bid offer was withdrawn after the books were opened. Apax cited a pension deficit. The full reasoning was never explained.

After the departure of Rogers, the CEO took a closer interest in the Entertainment Division, which he believed 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 the Division's profits came from the wholesale operations of Entertainment UK. Their success mirrored the progress of their biggest client, Tesco. After years of forcing down margins, the supermarket announced that it planned 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 a sharp decline in the sale of CDs and DVDs in the market, and price deflation as retailers fought for volume, the 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 moves left the Group too dependent on Entertainment products. The 2|Entertain publishing venture grew its profits by developing new overseas markets. But Woolworths depended on sales of CDs and DVDs for survival, with sales of the products topping £300m a year. More than 80% of the throughput of EUK was also music and video, much of it destined for Woolies.

There were also problems in the High Street. The move upmarket opened the door for discounters including the pound shops and Wilkinsons to undermine 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.

The decline was accentuated by developments at the supermarkets. They were attracted to the higher margins of general merchandise, and targeted the same markets that Woolworths had decided to concentrate on. 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.

The CEO's solution for the smaller High Street 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 the same systems and infrastructure that had been dismantled and written off shortly after the chain's demerger. It would also take time to become effective. It had good prospects in the medium to long term, but did little to arrest the immediate decline in the High Street. The product range proved appealing, generating sales of over £70m in 2007. But it was not profitable. The costs of the new operation contributed to the chain's first full year loss in almost a century at the year end.

The costs to service the new customer base in the Wholesale Division, along with the need to invest in Multi-Channel Retail, prompted the Board to negotiate for new Finance. The CEO took the lead in 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.

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 Managing Director. The appointment was welcomed the press, who considered the new man quite a catch. Page made restoring the High Street chain's reputation for value and improving availability his priorities. He introduced a new low entry price point range called WorthIt!, which attracted large numbers of shoppers back to the brand, and quickly built incremental profitable sales of over £1 million a week.

Corbett stepped down after seven years at the helm. The hard-hitter was replaced by Richard North, a less well known executive who had previously headed Intercontinental Hotels. North led a major strategic review, which decided on a major change in direction. It concluded that the CEO's recovery strategy was not working and that the chain should abandon its Big Red Book and concentrate on improving its smaller stores and move back down market. It was also time for the CEO Trevor Bish-Jones to go after six and a half years.

He was replaced by Steve Johnson, who had made his name at Focus DIY. After two years at the top he had sold the business to a private equity group for £1.

Whatever the rights and wrongs of the new appointments and the new strategy, they caused great annoyance among investors and those who financed the chain. 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 the man who had negotiated the terms had sold a strategy which would not be implemented. They wondered if they had been deliberately misled. The credit insurers who backed the Group's purchases, who were already under pressure in the credit crunch, soon saw that the brand was vulnerable to a downturn.

As a result credit cover was withdrawn, and the bankers refused to authorise further loans, instead demanding their money back. 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 funding in the credit crunch. Four weeks after going into Administration an orderly shutdown began. By 9 January 2009 every store in the ninety-year old chain had closed.

Just when it seemed that Woolworths was gone for good, and after the firm's 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 of the British brand, 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 Original Virtual Museum wishes them well with their mission. 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!

Perhaps one day they will even chance their arm in the High Street once again.