Woolworths Group plc

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Woolworths Group plc

Woolworth House
242-246 Marylebone Road
London, NW1 6JL
United Kingdom
Telephone: ( + 44-20) 7262-1222
Fax: ( + 44-20) 7706-5416
Web site: http://www.woolworthsgroupplc.com

Public Company
Incorporated: 1909 as F.W. Woolworth & Co. Ltd.
Employees: 31,754
Sales: £2.63 billion ($4.66 billion) (2006)
Stock Exchanges: London
Ticker Symbol: WLW
NAIC: 452990 All Other General Merchandise Stores; 452910 Warehouse Clubs and Superstores; 454111 Electronic Shopping; 454113 Mail-Order Houses; 423990 Other Miscellaneous Durable Goods Merchant Wholesalers; 512110 Motion Picture and Video Production

Woolworths Group plc is a major general merchandise retailer in the United Kingdom. The company operates more than 800 traditional Woolworths outlets (or Woolies as they are often affectionately called) located in small towns and city suburbs with an average size of a bit more than 8,000 square feet. The main store offerings include confectionery items, toys, children's clothing, seasonal items, small electrical goods, and home entertainment products (music CDs, DVDs, videos, and games software). The group also operates around 20 out-of-town Woolworths superstores located in major regional shopping centers that offer a larger selection of toys and entertainment products, a baby shop, and children's furniture. The superstores encompass on average approximately 51,000 square feet. In addition to these core operations, which generate nearly three-quarters of revenues, Woolworths Group is also involved in three entertainment businesses. The company owns EUK, the largest wholesale distributor of home entertainment products in the United Kingdom, and Streets Online, a leading online retailer of entertainment products, and it holds a 40 percent stake in 2 Entertain Limited, a joint venture with BBC Worldwide Ltd. specializing in audio and video publishing.

BEGINNINGS IN 1909 AS U.K.
SUBSIDIARY OF F.W.
WOOLWORTH

Woolworths originated as a subsidiary of F.W. Woolworth & Co. of the United States. The American company was founded in 1879. The company's founder, Frank Winfield Woolworth, identified the potential for a walk-around open display type of shop in Britain during his first visit to Europe in 1890. He observed that "the [London] stores … are very small and are called 'shops' and not much like our fine stores. I think a good [threepenny and sixpenny] store run by a live Yankee would create a sensation here, but perhaps not." In 1909 he decided to found a subsidiary in Britain even though his chief executives thought that it would be unsuccessful. On July 23, 1909, the subsidiary was incorporated in England as a private limited company, F.W. Woolworth & Co. Ltd., with a share capital of £50,250. In 1912 the share capital was increased to £100,000. After this time the entire increase in assets was built up from earnings and there was no further increase in capitalization. Between 1909 and 1919 the American shareholders received no dividends at all and for the following six years dividends were paltry. This was not for lack of profits but because the shareholders wanted to build up the reserves of the company so that it was always in a position to expand without recourse to borrowing.

The first shop opened at 25 and 25a Church Street, Liverpool, on November 5, 1909. The Draper described it as "a penny, threepenny, and sixpenny bazaar on a large scale. In each of the four large salesrooms there are wide counters, extending the full length of the hall, and on these are placed mahogany trays containing the articles for disposal.… The public, we are told, are privileged 'to wander round the immense establishment without being importuned to buy.'" During the first two days of business 60,000 people visited the shop. Following steady business improvement, Woolworth opened a second shop in Preston and properties were also obtained in Manchester, Leeds, and Hull. In 1910 a third shop was opened, on London Road, Liverpool. The premises were obtained from Owen Owen, a department store owner, who told Woolworth that he had no idea that the "bazaar business could be elevated to such a high standard." On the opening of the third shop there was a riot. The riot made the management wary. When the sixth shop opened in Hull later in 1910, crowd barriers were put in place to stem the anticipated rush of customers. By the end of 1910 the company was operating ten shops, with another two in preparation.

The same business methods that had worked so well in the United States were adopted in Britain. Everything carried a plain price tag, and the prices were one old penny (£0.004), three old pence (£0.0125), and six old pence (£0.025). Supplies were bought directly from manufacturers. As in the United States, Woolworth had difficulty at first in Britain in persuading manufacturers to deal with him directly. Like the U.S. manufacturers, however, the British manufacturers who agreed to supply Woolworth directly soon found they had made the correct decision. Many of these suppliers also grew with Woolworth from small beginnings. A notable example was Duttons Ltd. When the first shop was opened in Liverpool, Duttons received its first Woolworth order. Subsequently, Duttons set out solely to service Woolworth with all types of price tickets, advertising, and printed matter. By the early 1960s Duttons was also responsible for the supply of many items of stationery to the majority of Woolworth's suppliers.

The Woolworth method of retailing moved from strength to strength. By 1912 the chain had expanded to 28 shops, 26 of which were managed by Britons. The year's net profits were more than $100,000. In 1914 Woolworth opened its 31st shop, in Grafton Street, Dublin. This was the first Woolworth shop in Ireland. After the creation of the Irish Republic, Woolworth established a separate Irish subsidiary, F.W. Woolworth Company of Ireland, Ltd. When World War I began, women store managers took the places of the men who joined the armed forces. When suitable women could not be found, men were drafted from the parent company in the United States. After the war, the British subsidiary was ready for major expansion. The man who was to be principally responsible for the expansion was William L. Stephenson.

COMPANY PERSPECTIVES

Woolworths offers its customers value-for-money on an extended range of products. It is built around the well known Woolworths brand which is represented in towns and cities throughout the UK.

BRITISH PUBLIC COMPANY IN
1931

Frank Woolworth met Stephenson through Edward Owen of Birmingham, a buyer for Wanamaker and other American shops. Stephenson was Owen's assistant. Stephenson started work at the company in September 1909, at the express invitation of Frank Woolworth, even before the first shop had been opened. Stephenson succeeded Fred M. Woolworth, a cousin of Frank, as managing director of the British subsidiary when Fred died in 1923, becoming chairman in 1931 when Woolworth was floated as a British public company and the U.S. parent corporation's interest in its subsidiary was reduced from 62 percent to 52.7 percent of the ordinary shares. Shortly before the flotation, F.W. Woolworth Company of Ireland, Ltd. was voluntarily liquidated and its two shops in Dublin and one each in Cork, Belfast, Limerick, and Kilkenny were incorporated into the British company. The flotation of the chain of 444 shops was underwritten by N.M. Rothschild & Sons. As a result of the company's excellent track record, the Woolworth flotation was a success, despite taking place in the depths of the Great Depression. Since its foundation in 1909 its turnover and profits had never failed to rise from one year to the next, and continued to do so each year until the early part of World War II.

An important change made by Stephenson was to buy properties for his shops instead of taking leases (Stephenson's property investments would later make a major contribution to the revival of Woolworth's new parent, Woolworth Holdings/Kingfisher, during the 1980s). Under Stephenson's management Woolworth was soon opening shops in Britain at the rate of at least one every fortnight. This remarkable rate of growth was maintained until the early part of World War II. By the late 1930s each shop returned an operating profit two or three times as large as its U.S. counterpart. In 1939, when World War II began, there were 759 British Woolworth shops and nine more under construction.

World War I had brought difficulties to Woolworth but they had been surmounted. From 1914 to 1918 the number of British shops rose from 44 to 81. World War II was different. The expansion program ceased. Furthermore, 23 shops were destroyed and 352 were damaged by enemy action. The company's Channel Island shops in Guernsey and Jersey were placed under German administration from July 1940. In both wars, many of Woolworth's staff joined the armed forces and many did not return. In World War II, however, many who stayed in Woolworth's service were killed by enemy action. In November 1944, a single V2 rocket destroyed the shop at New Cross, London. In this second-worst air raid of the war, 160 people in the shop were killed, including the manager and 18 members of her staff, and an additional 108 people were seriously injured. One other noteworthy item that occurred during the war was the abandonment of the six-pence price ceiling, in 1942.

In 1948 Stephenson retired as chairman of Woolworth. In the early postwar period, it was some time before material losses could be made good. It was not until the latter part of 1956 that the last blitzed shop was reopened. There had been 768 shops in operation in 1940. By 1950 there were still only 762, but from the end of 1951 the expansion program was resumed.

POSTWAR EXPANSION AT HOME
AND ABROAD

In 1954 Woolworth began a new program of expansion into the British Commonwealth with the establishment of a subsidiary in the British West Indies. On November 4, 1954, the company's first store in the West Indies was opened in Kingston, Jamaica. In November 1955 a second West Indian store was opened in Port of Spain, Trinidad. In October 1956 a third shop was opened in Bridgetown, Barbados. Between mid-1958 and the end of 1973 the West Indian subsidiary was expanded to more than a dozen shops located in Jamaica, Trinidad, and Barbados. Woolworth also established a subsidiary in southern Rhodesia, now Zimbabwe, at the end of the 1950s. A shop was opened on March 18, 1959, in the capital, Salisbury. On November 10, 1960, a second shop was opened in Bulawayo. In early 1974 a subsidiary was established in Cyprus and a shop was opened in Nicosia.

KEY DATES

1909:: The U.S. firm F.W. Woolworth & Co. establishes a British subsidiary, F.W. Woolworth & Co. Ltd., which opens its first variety store in Liverpool.
1931:: British Woolworth is taken public with U.S. parent retaining 52.7 percent interest.
1955:: Company opens its first self-service shop in Cobham, Surrey. Woolworth reaches its British Isles peak of 1,141 shops.
1982:: British Woolworth is purchased by a syndicate of institutional investors through a takeover vehicle called Paternoster Stores plc, which soon changes its name to Woolworth Holdings plc.
1985:: "Focus" program concentrates the general merchandise stores on a narrow range of products.
1986:: F.W. Woolworth chain is renamed Woolworths; parent company purchases Record Merchandisers, later renamed Entertainment UK (EUK).
1989:: Woolworth Holdings changes its name to Kingfisher plc.
2001:: Kingfisher spins off its general merchandise operations, including Woolworths and EUK, as Woolworths Group plc.

Meanwhile, the number of shops in the British Isles also expanded rapidly. The 1,000th shop was opened in Portslade, Hove, Sussex, in May 1958. A peak of 1,141 shops was reached in the late 1960s. With the widening range of merchandise stocked by Woolworth there had to be a wider range of prices. Inflation resulted in the end of the three old pence and six old pence price limits during World War II. In the early postwar period Woolworth pioneered the development of self-service in the variety part of the retail sector. In 1955 Woolworth opened its first British self-service shop in the small village of Cobham, Surrey, modeled on the experience in the United States. Customers could, if they so desired, collect a wire basket at the shop entrance in which to place their purchases, and payment was made at one of three or four cash desks at the exit, eliminating the need to pay separately at each department visited, as in the traditional shops. The first completely self-service Woolworth shop was opened at Didcot near Oxford in September 1956. By the early 1970s Woolworth had more than 190 purely self-service shops in operation, some of them large by British standards, selling a full variety shop range.

In October 1966 Woolworth founded a new division, the Woolco Department Stores. The division was to oversee the creation of a national chain of up to 20 out-of-town department stores that were to operate independently and in addition to the traditional shops. The stores contained a full range of quality merchandise at competitive prices, including clothes, domestic appliances, toys, groceries, confectionery, car service, and restaurants. The new stores were modeled on the parent company's Woolco stores in U.S. and Canadian suburban shopping centers, which had been in operation since 1962. The first British Woolco was opened in October 1967 at Oadby, Leicester. Oadby provided free parking for about 750 cars away from the congestion of the city center. Between 1969 and 1977 an additional 13 Woolco stores were opened. In 1977, however, Woolworth began to reassess the value of the Woolco division to the company. In December it sold its Woolco store at Kirkby and a hypermarket site with planning permission in Blackpool.

PERIOD OF DECLINE

In the late 1960s profits began to fall at Woolworth. A visible sign of trouble came in 1968, when Woolworth lost its place as Britain's leading retailer and Marks & Spencer overtook it in both sales and profits. Despite a modernization program, Woolworth still possessed a number of small and poorly located branches with an extremely low rate of turnover and profitability. These branches detracted from the improved performance of the larger units. Furthermore, the Woolco stores were still in the development stage. The results announced in January 1970 were the worst since 1962.

During the late 1960s the company's modernization program had been extended to include the enlargement of the company's shops in the major British towns and cities. Two that were opened after extensions in 1968, in Wolverhampton and Ipswich, became the largest in area in Britain. The largest of all, in Wolverhampton, had a shopping area of 70,000 square feet with 1.25 miles of counters. The Aylesbury store, which opened in the jubilee week of the company, on November 7, 1969, became the second largest shop, with an area of 69,000 square feet. In the early 1970s major extensions and modernizations took place at Basingstoke, Brentwood, Hartlepool, Brighton, Leith, Liverpool, Manchester, and Wrexham. These shops included extended male, female, and children's clothing departments; fitting rooms; sports departments; music and record departments; and extended hardware and household departments. They also had extensive food departments and restaurants.

In 1971, with profits still falling, Woolworth began a new cash-and-wrap policy and began to convert 777 shops from conventional behind-the-counter service to a system of centralized payment points in each shop where goods could be paid for and wrapped, thus increasing the speed of service. At the same time the company closed 23 of its unprofitable shops and attempted to trade up and lose its reputation as a purveyor of cheap goods. Nonetheless, the consumer boom of the early 1970s appeared to have passed Woolworth by. Woolworth's profits failed to recover very strongly, in part as a result of the heavy costs of its shop modernization program in the early 1970s and prolonged start-up problems with a new distribution center at Swindon that had been opened in July 1972.

Despite its stated intention to stop selling cheap goods, in 1973 Woolworth decided to open a chain of catalogue discount shops. The new chain, Shoppers World, was launched in Leeds in September 1974 and initially consisted of 15 shops in Birmingham, Liverpool, Manchester, and Leeds. After considerable initial success, the chain also opened an outlet in London in September 1975. Nonetheless, profits continued to stagnate in the mid-1970s. Although the company showed a determination to change with the times, one of its weaknesses was the poor quality of its customer service. Staff turnover was high and this led to consumer dissatisfaction. Another weakness derived from the expansion in the British Isles during the 1950s. Many of the sites chosen were in secondary locations unsuitable for chain stores. An even more serious weakness was that it launched itself into new products in the wrong way. The success of the new products depended on a well-trained staff, first-rate service, and a more polished consumer image than Woolworth had acquired by the mid-1970s. In the late 1970s, however, the performance of the company began to improve. In 1978 the company lifted itself clear of a ten-year profit trough.

During the late 1970s there was a major change of emphasis in Woolworth away from food into furniture, clothing, do-it-yourself (DIY), and other durable items. In August 1980, in its first ever takeover bid, Woolworth paid £16.7 million for a Southampton-based chain of more than 40 DIY centers, B&Q plc. In October 1981 Woolworth acquired the Dodge City chain of 32 DIY centers for £20.1 million. These centers were eventually converted into B&Q outlets.

Despite the recovery in profits in the late 1970s, Woolworth had still not solved its problems. In 1981, having supposedly repositioned itself upmarket, Woolworth cut prices on 800 of its lines. In addition, Woolworth began to sell some of its valuable prime town center properties to stem the losses these large shops were making. On balance this made sense, since though these properties were valuable they were also leviathans. The 1981 results, excluding property sales, showed after-tax profits down from £30.3 million to £22.5 million. The company's dividend was cut for the first time in its history. Not only were the shareholders dissatisfied, but also the customers and employees.

1982–2001: PATERNOSTER/
WOOLWORTH HOLDINGS/
KINGFISHER ERA

In September 1982 a syndicate of institutional investors led by the merchant bank Charterhouse Japhet launched a £310 million takeover bid for the British Woolworth through the specially created Paternoster Stores plc. Paternoster was led by Wolverhampton-born Chairman John Beckett and Geoff Mulcahy, the chief executive. By November, more than 90 percent of the shareholders had accepted the syndicate's bid and Paternoster's name was changed to Woolworth Holdings plc. As Paternoster did not have enough money to cover the whole of the bid, U.S. Woolworth temporarily retained a 12.7 percent share in the new company. The holding was sold almost immediately afterward.

Woolworth Holdings began to reorganize by removing the unprofitable parts of the business. Between late 1982 and 1991 the group sold about 200 of its unprofitable Woolworth shops in the United Kingdom, reducing the number to around 790. The group also sold all 18 of its shops in the Irish Republic in 1984. In April 1983 the Shoppers World chain of 45 shops was closed down. Later in 1985 the Woolworth shops in Cyprus were sold and between 1987 and 1990 all of the shops in the West Indies and Zimbabwe were also sold. On the other hand, B&Q, a profitable part of the business, was expanded, mostly through organic growth, with as many as 30 new stores a year. By January 1984 the company's pretax profits had risen from £6.1 million to £29.4 million. To emphasize that the change in the group's Woolworth shops was fundamental, their trading name was changed from F.W. Woolworth to Woolworths in March 1986. In May 1984 the company launched a successful bid for Comet, the electrical goods discount chain, for £128.9 million. During 1984 Woolworths Holdings profits nearly doubled. Profits came from the still expanding B&Q, with 153 centers, the newly acquired Comet, and the Woolworth shops disposal program.

In early 1986 Beckett retired as chairman of Woolworths Holdings, having successfully overseen the revival of the group. During 1986 the company was subject to an unsuccessful £1.75 billion hostile takeover bid from Dixons Group plc, the electronics retailer. During the takeover battle, the group sold its 12 Woolco superstores to Dee Corporation plc for £26 million. The Woolco sale fit with Woolworths' "Focus" program, launched in 1985, of concentrating on a narrower range of merchandise: toys, gifts, confectionery, entertainment (including records and cassettes), home and garden accessories, kitchen accessories, kids' clothes, and cosmetics. Food and adult clothing, which contributed 30 percent of sales, were completely abandoned. The Woolco stores, which had specialized in groceries and clothing, had been the first out-of-town food stores and could have become as successful as the Sainsbury superstores later became. The buyers in the old Woolworth were jealous of Woolco's initial success, however, and started cramming them with old-fashioned variety merchandise.

As part of "Focus" the company formed a joint venture with the Rosehaugh property group to redevelop five of its Woolworths shops by reducing the amount of space occupied by the shops. For example, the Wolverhampton shop was shrunk from three floors to one floor. In the opinion of the Financial Times, while it made good sense it was a "humiliating climb-down." Also in 1986 came the acquisition of Record Merchandisers, which was later renamed Entertainment UK and which by the mid-1990s was a leading U.K. distributor of prerecorded music and videos, computer software, and books. The company had been founded in 1966 and later operated as a joint venture between several record companies. Over the years, Woolworths developed into the firm's largest customer.

Woolworths' parent completed a string of acquisitions in the late 1980s that further diversified its retail holdings. These included drugstore chain Superdrug plc (1987); electrical goods retailer Ulimate (1988), integrated into Comet; and Tip Top Drugstores plc and Share Drug plc (1988), both integrated into Superdrug. Reflecting this shift in the group's focus away from its general merchandising arm, Woolworth Holdings changed its name to Kingfisher plc in March 1989.

During the early to mid-1990s Kingfisher continued its acquisitive ways, in the process becoming an even more diversified retailer and building an enlarged presence in continental Europe. Many of its acquisitions during this period fell within the electrical goods retailing sector. In 1990, however, in a move that figured into Woolworths' future, the parent company pursued organic growth through the launch of a new retail concept, Music and Video Club (MVC), which specialized in such home entertainment staples as music CDs and cassettes, prerecorded videos, and multimedia products; by 1996 there were 34 MVCs in the United Kingdom.

By 1998 the Woolworths chain had been turned around primarily by restoring its price competitiveness and resolving distribution and systems troubles. It was striking, however, how the parent company's diversification drive had diluted the impact of Woolworths on the overall group's performance. By this time, Woolworths was responsible for only about a quarter of Kingfisher's sales and less than 20 percent of its earnings. Nevertheless, in a historic irony, Woolworths had also outlasted its former U.S. parent. Woolworth Corporation shut down all of its U.S. five-and-dime stores in 1997 and then two years later renamed itself Venator Group Inc. (later Foot Locker, Inc.).

In the late 1990s Woolworths' fortunes headed south once again as its sales of general merchandise suffered from intensifying competition from U.K. supermarket chains in the process of expanding their nonfood offerings. Same-store sales growth (a key industry statistic comparing sales at stores open at least a year) fell from 5.3 percent in 1999 to 2.7 percent in 2000 to just 1.8 percent in 2001. Profits fell from £114.4 million to £91 million during this same period. To combat this slide, Kingfisher embarked on both an expansion program that aimed to add one million square feet of selling space to the Woolworths chain by 2003 and a remodeling program that overhauled 98 stores in fiscal 1999 and 49 in 2000. Kingfisher also launched two new formats intended to drive Woolworths' future growth: Big W, an out-of-town superstore format that debuted in 1999, and the Woolworth General Store, a convenience store format introduced in 2000. As well, Woolworths began selling products online in 1999, initially offering 18,000 product lines. In the meantime, Kingfisher in November 1998 spent £46.8 million to acquire music and video publisher VCI plc, in another move that figured into Woolworths' future.

In 1999 Kingfisher reached an agreement on a £6 billion merger with the U.K. supermarket chain ASDA Group plc. However, U.S. retailing behemoth Wal-Mart Stores, Inc. swooped in to trump Kingfisher's move and acquire ASDA in its first move into the U.K. market. Woolworths thus missed out on the synergistic opportunities that might have been pursued, such as creating Wal-Mart-style superstores by combining, under one roof, an ASDA supermarket with a Woolworths general merchandise outlet. In the wake of this setback, Kingfisher in September 2000 announced its intention to demerge its general merchandise arm, including both Woolworths and Superdrug, in order to concentrate on home improvement and electrical goods retailing.

Prior to Woolworths' separation from Kingfisher, however, the parent company engineered two acquisitions worth noting. Late in 2000 Kingfisher acquired an 85 percent stake in Streets Online for £15.7 million ($22.7 million). Founded in 1996, Streets Online was an online retailer of entertainment products, including music CDs, DVDs, video game software, and books. It fit well alongside MVC and Entertainment UK (EUK) as well as Woolworths itself, which controlled about 15 percent of the U.K. market for entertainment products. Woolworths also acquired the Ladybird kids' clothing brand in January 2001, thus solidifying its position as the third largest children's clothing retailer in the United Kingdom, with a market share of 6 percent. Woolworths had held the exclusive rights to the brand since 1984, and had carried the clothing brand since 1932, but now gained outright control by purchasing it from Coats Viyella Plc.

2001: RETURN TO
INDEPENDENCE

After entering into discussions with various parties about selling both Superdrug and Woolworths, Kingfisher ended up reaching an agreement in July 2001 to sell Superdrug to the Dutch health and beauty group Kruidvat Beheer. Then on August 28, 2001, Kingfisher spun its remaining general merchandise operations off to its shareholders, forming Woolworths Group plc, which began trading on the London Stock Exchange. Woolworths Group included not only the Woolworths chain but also Kingfisher's several entertainment properties: MVC, EUK, Streets Online, and VCI. Heading the newly independent firm as chairman and interim chief executive was Gerald Corbett, the former chief executive of Railtrack PLC, owner and manager of the United Kingdom's rail infrastructure.

Woolworths began its new era saddled with £200 million in debt, which Corbett worked to pay down during the remainder of the fiscal year ending in January 2002. He also made several additional moves, including writing off the value of more than £100 million worth of excess Woolworths inventory, taking a £12 million hit to pull the plug on the Woolworths e-commerce venture, and writing down the value of Streets Online by £27 million. All told, special charges of £72.1 million led to a net loss for the year of £47.2 million.

In March 2002 Trevor Bish-Jones was brought onboard as chief executive with Corbett becoming nonexecutive chairman. An experienced retailer, Bish-Jones had worked from 1994 to 2001 at Dixons Group plc, where he had last served as managing director of Currys. Almost immediately the new leader axed the Woolworths General Store format, as the performance of these stores had been disappointing. They were converted into standard Woolworths outlets. Over the next couple of years Bish-Jones worked to simplify the company's structure, flattening the organization and improving the lines of communication. He also beefed up the investment in information technology, particularly by rolling out a new electronic point-of-sales checkout and inventory-control system that improved customer service by cutting checkout times and helped keep the store shelves properly stocked.

Another important initiative was the development of a new store format that centered on making Woolworths famous for "Kids and Celebrations." The first trials of the new format were successful, showing a 10 percent increase in sales and 1 percent in profit margins. In March 2004 Woolworths announced a remodeling program involving the eventual transforming of 300 or more of its main-street stores into the new format. During the 2005 and 2006 fiscal years, about 50 stores adopted the new format each year. In this same period, a multichannel strategy was adopted for the Woolworths chain that enabled customers to place orders online and at in-store Internet kiosks for either in-store pickup or home delivery. In late 2006 the chain launched a new 538-page catalog called the Big Red Book through which it hoped to drive sales during that year's holiday season. Meanwhile, the Big W store format was abandoned in 2004. The stores were rebadged under the Woolworths name and were gradually reduced in size to about 40,000 square feet.

In early 2005 London-based Apax Partners & Co., a private equity house, approached Woolworths Group with an £837 million offer to take the company private. In April, however, after taking a closer look at Woolworths' books, Apax pulled out of the deal. In the meantime, Woolworths had decided to jettison its loss-making MVC chain. In August it sold the music and DVD retailer to a group of private equity investors for a bargain basement price of £5.5 million, incurring a loss of £34 million. (By year's end, MVC had filed for bankruptcy, and early the following year most of its stores were sold to rival music retailer Music Zone Services Limited.) Also on the entertainment front, Woolworths in September 2004 merged its VCI music and video publishing companies with the video business of BBC Worldwide Ltd. to form the joint venture 2 Entertain Limited, with Woolworths holding a 40 percent stake. 2 Entertain held the first option to develop video versions of BBC productions.

Despite all the new initiatives, Woolworths' performance in 2005 and 2006 suffered from an extremely difficult retail environment. Consumer confidence in the United Kingdom was low, and competition was intense. Profits were down in 2006 as same-store sales fell 3.9 percent. During the first six months of the following year same-store sales were even worse, dropping 8.3 percent. More bad news arose in January 2006 when supermarket giant Tesco PLC announced it would begin handling distribution of entertainment products in-house in April 2007, ending its relationship with EUK. Woolworth responded, however, with the September 2006 acquisition of Total Home Entertainment Distribution Limited (THE) for £20 million. Another wholesaler of entertainment products, THE counted among its key clients the supermarket company J Sainsbury plc.

In the meantime, the Icelandic investment firm Baugur Group built up a stake in Woolworths Group of approximately 10 percent during 2006 in a prelude to a possible takeover bid. Reports in the Financial Times indicated that Baugur was pushing for a breakup of the group centering on the spinning off of the entertainment businesses and a slashing of the Woolworths chain through a sale of a large number of the stores to a leading supermarket chain such as ASDA. Bish-Jones argued that the time had not come for such a move, that his turnaround plan should be allowed to go forward. In September 2006 he further announced plans to close about two dozen of the chain's larger main-street stores within two to four years and to open 100 smaller stores over the following four years. The venerable Woolworths chain, seemingly much loved and derided at the same time in the United Kingdom, thus faced a very uncertain future.

Richard Hawkins

Updated, David E. Salamie

PRINCIPAL SUBSIDIARIES

Entertainment UK Limited; Streets Online Limited; Woolworths Media plc; Woolworths Group Finance Limited; Woolworths plc; Flogistics Limited; WMS Jersey Limited; WMS Card Services Limited; Woolworths Asia Limited (Hong Kong); Woolworths Insurance (Guernsey) Limited.