Case Study: Why Woolworths Failed as a Business?

The British Company, Woolworths is normally categorized as a variety store dealing in retailing of a range of varying products. Historically it was established as a subsidiary of an American Company F.W. Woolworth &Co, in 1879 by Frank Winfield Woolworth It was incorporated in England on 23rd July, 1909 as private limited company with initial capital of 50,250 pound sterling. It, first time floated a new idea of selling all the products at a cost not more than five cents. This idea gained popularity amongst the customers resulting in fast growth of the subsidiary. Its first shop at Liverpool attracted about 60,000 people in first two days because of attractive one penny, three penny and six penny products put at sale. It continued to open new shops at various cities that attracted heavy rush of customers and visitors. It was company’s policy to purchase the products directly from manufacturers, who also were very happy due to momentum in their business as well. Some of the manufacturers started doing business solely with the Woolworths and labeled their products with the company’s name. Company’s business grew day by day and it had 31 shops in United Kingdoms by the year, 1914. Due to inflationary trends after the World War II, the company had to do away with its three pence and six pence price limits. It introduced self service first time in its retail side in the year 1955. Woolworth opened about 190 self-service stores by the year 1970. It created new division in the stores by establishing Woolco departmental stores in the year 1966. These stores had full range of quality products like, clothes, groceries, car service and restaurants etc. available at affordable prices.

The Company continued to flourish very fast because of its stated aim to remain at the customer’s heart and best kid’s retailer till 1966. But thereafter its sales as well as profits started falling because of its competitors, Marks & Spencer who overtook its sales as well as profits. The results of the company were the worst in the year 1969, because it failed to chalk out suitable strategies necessary to take on its competitors in the market. Sales at Woolworth began to decline. Consumers were reportedly not satisfied with the quality of customer services of the company. Many of the business sites were not at prime locations. Its new products could not attract the customers because of lack of well trained staff and availability of ‘A class service’. The company tried to improve its services in the year 1971 by introducing new system of centralized payments besides closing its 23 unprofitable shops, as an attempt to trade up. The profits of the company increased to some extent as a result of these measures but it failed to boost up its profits at the desired level.

The competitors of Woolworth like Wal-Mart, Argos and Next very soon became more prevalent in the market because of low prices, better service and vast range of their products. The Management of the company ultimately decided to sellout the Woolco stores in 1977. In the year 1981 it sold-out some of its valuable prime located properties to cover-up the losses suffered by the shops situated at these locations. Even then its profits went down in the said year and the company was forced to cut the dividends first time since its establishment. In the normal restructuring process during the year 1985, the company decided to abandon the sale of food and adult clothing that was contributing about 30% of its overall sales. The Management of the company sold out its 200 unprofitable shops out of about 990, during the years 1982-1991. During this decade company made a number of acquisitions in order to become more diversified in retail business. It launched Music and Video Club that specialized in CDs, videos and other entertainment products. The company succeeded in boosting its sales and turnover during 1990s and gave impressive results despite the fact that some of major chains like Wilkinson expanded their business in the Woolworth areas.

Woolworth reviewed its entire business in the year 2002. It reconsidered its further expansion and realignment and merger of its overall management structure. It strengthened infrastructure and planned accurate management of its stocks so as to maintain them at their optimum levels. It introduced new till system in order to ensure its stock holding capacity besides provision of improved and efficient services to the customers. The management decided to cut the number of suppliers and enhance the use of their own branded products. These improvements contributed a little in the sales as well as profits. One of main money spinners of the company was its music business that collapsed. The financial results for the year 2004 showed just 4.5% increase in the profits of the company. It had to compete strongly with Argos in the sales of toys and gifts. In the year 2006, the company introduced an in-store collection service for items ordered through website. Company continued its business mainly in entertainment and electronics till the year 2008. It expanded its chains and set up out of town stores that were known as ‘Big W’. It announced considerable loss in its half yearly statement of affairs as on 2nd August, 2008. The management, therefore decide to sellout abut 120 stores, cut jobs and reduce web operations. At this stage reportedly the company rejected an offer to buy its 815 stores. From September onwards the entire World entered into worst ever economic and financial crises that resulted in decrease in availability of necessary credit from the banks and financial institutions besides decrease in consumer spending. The lending banks of the company not only refused to give further credits, they also demanded repayment of their existing loans towards the company. As a result of this crisis the retail business badly suffered. Media also reported possible price crashes, increased personal debts, unemployment, pension shortfalls, stock market crashes and decrease in availability of disposable income.

Under these circumstances as well as in wake of market saturations, coupled with economic downturn, it was highly difficult for the Woolworth to maintain competitive pricing. Woolworth’s financial results for the first half of the year 2008 showed 99.7 million pounds pre tax loss. Decreased credit availability, decreased public spending and pressure of creditors to pay off debts of about 385 million pounds, forced the company to sellout its 120 shops that were going in loss besides reducing the web operations, cutting the products and axing the employees. These measures could not help the company to survive and ultimately it suspended trading of its shares on the 26th 0f November, 2009 and at last decided to close down its all 819 stores and axe its 27000 highly dedicated employees. The parent company of Woolworth also announced its intention to go into administration on the 19th of January, 2009

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