Rubbish week for: Woolworths

What happened

After shares falling by 90% over the previous year, the trading of shares in Woolworths Group plc was suspended on November 26 2008. By December 17 2008, it was announced that all 800-plus Woolworths stores would be closed by the end of January.

Having accumulated £124m debt by February of that year already, you wouldn't be seen as the meanest kid in the playground if you pointed out that it still could've been a deal worth pursuing

The news followed an all-time low in mid-November when restructuring specialist Hilco failed to sell Woollies for the princely sum of one whole pound (just in case you missed that, it was £1), in return for the buyer assuming the majority of its £385m debt.

Why

There's a broad range of explanations to pick from as to why Woolies went down, as flocks of analysts and journalists hurried to put in their two penny-sweets - sorry, two pennies.

Most obviously, the company was struggling with £385 of debt. Immense price pressure from the ever-shrinking costs of supermarkets - whose massive diversity of products now more than ever overlaps with the traditional Woolies ranges - was forcing Woolies to make price-cuts it just couldn't afford.

And with more and more people heading to the supermarkets to buy everything they need and the overwhelming popularity of online shopping, Woolies simply wasn't a necessary stop-off on consumers' to-do lists. It also said that it'd been squeezed by selling more low-margin entertainment products but being unable to shift so many high-margin electrical items and other goods.

To worsen the situation, it had been forced to pay cash for goods from suppliers when trade credit insurers refused to insure suppliers to Woolworths any longer. And finally, although rather tragically, there was a general feeling that Woolworths had simply fallen out of fashion.

Were they to blame?

No one could've predicted with any hard-and-fast certainty that internet shopping would take off the way it did, but Woolworths should've done a lot more to keep up with the trend - rather than allowing itself to be squeezed out by it. The almighty power of the all-dominant mega-super-supermarkets, however, is more difficult to stave off. Woolworths is by no means the first, and will certainly not be the last, retailer to drown in the wake of their monopolisation of, well, almost everything.

But perhaps a cannier board would've found ways to differentiate Woolworths from the supermarkets, rather than flailing blithely on in what effectively looked like a weak imitation of much of what they did. And let's not forget that in August, Woolworths rejected a takeover bid of £50m, from a group headed by the Iceland frozen food chain-founder Malcolm Walker.

True, there were cries that the deal wasn't properly structured, but having accumulated £124m debt by February of that year already, you wouldn't be seen as the meanest kid in the playground if you pointed out that it still could've been a deal worth pursuing. If only to save the 27,000 jobs that have now been sacrificed instead of that extra couple of million.

Finally, and to the defence of Woolies, it is worth pointing out that there have been murmurs that administrator Deloitte had blood on its hands - notably from former Woolworths chief executive Sir Geoff Mulcahy who called its handling of the process "disgraceful". Which never helps a business in distress.

How to avoid doing the same

Ultimately, this is about retaining your competitive edge. If your USPs are no longer USPs (diversity of product range, in this case) create new ones as soon as you can. Carve yourself out a stronger niche. Keep up with trends and for the love of God harness the power or online retail when this is what all your consumers are using. On a strategic level, make necessary reductions early. If things are looking a bit rocky for you or the economy as a whole, make cuts and reduce overheads early to avoid more amplified problems later. If you're a large chain, consider carefully how much value each of your premises is adding and sell them off if it's not that much. And finally, don't be over-cocky. If you have £124m of debt, takeover bids should probably be welcomed with an oversized musical thank you card, rather than rejected.

Smarta sympathy score: 7/10

A failure to keep up isn't the worst crime in the book, but an executive board managing a business on this scale should have done better than this. That said, we still love and lament the loss of Pick 'n' Mix - so we're justifiably biased...

 

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