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Woolworths Group plc

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.

19822001: 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.

PRINCIPAL COMPETITORS

Tesco PLC; ASDA Group Limited; Argos Limited; Marks and Spencer Group p.l.c.; House of Fraser PLC; Arcadia Group.

FURTHER READING

Buckley, Neil, "Kingfisher Turns the Corner," Financial Times, January 18, 1996, p. 25.

, "Potential Cost of Selling It Cheap Every Day," Financial Times, March 24, 1994, p. 17.

Callan, Eoin, "Woolworths' Best Hope May Be Three-Way Split," Financial Times, September 7, 2006, p. 21.

Callan, Eoin, and Elizabeth Rigby, "Woolworths Target for Mass Store Break-up," Financial Times, September 6, 2006, p. 1.

Callan, Eoin, Lucy Killgren, and Elizabeth Rigby, "Woolworths Snubs Break-up Calls," Financial Times, September 21, 2006, p. 21.

Caulkin, Simon, "The New Worth in Woolworth," Management Today, March 1987, pp. 46 +.

Ellison, Sarah, "U.K.'s Woolworths Is About to Become Independent," Wall Street Journal, August 7, 2001, p. B4.

Harris, Clay, and Elizabeth Rigby, "Apax Drops Plan to Offer £837m for Woolworths," Financial Times, April 14, 2005, p. 21.

Hollinger, Peggy, "Kingfisher to Demerge Two Chains," Financial Times, September 14, 2000, p. 25.

Kirkwood, Robert C., The Woolworth Story at Home and Abroad, New York: Newcomen Society in North America, 1960.

Mulcahy, Geoffrey, "Woolworth Holdings," in Turn-Around: How Twenty Well-Known Companies Came Back from the Brink, edited by Rebecca Nelson and David Clutterbuck, London: Mercury, 1988.

Oram, Roderick, "Kingfisher's Challenge," Financial Times, February 4, 1995, p. 14.

Pierce, Julia, "Streets Online Looks to New Backer for Its Future," New Media Age, December 21, 2000, pp. 26 +.

Rigby, Elizabeth, and Peter Smith, "A Strategic Slice of the High Street Is on Sale at Woolworths," Financial Times, February 1, 2005, p. 22.

Smith, Alison, "Woolworths Rises on First Day After Kingfisher Split," Financial Times, August 29, 2001, p. 17.

Smith, Peter, "Woolly Outlook Clouds Vision," Financial Times, March 28, 2002, p. 29.

Thornhill, John, "Retailers Must Save Themselves," Financial Times, October 17, 1992, p. 13.

Travers, Nicolas, "Darning the Holes in Woolies," Director, June 1987, pp. 4851.

Urry, Maggie, and Alice Rawsthorn, "Retail Monarchs in Search of Global Empires," Financial Times, February 5, 1993, p. 15.

Voyle, Susanna, "Now DIY Stands for Dismantle It Yourself," Financial Times, September 16, 2000, p. 18.

, "Woolies Needs Wizard's Touch to Restore Wonder," Financial Times, March 2, 2001, p. 22.

, "Woolworths Chief Finds Formula to Return Growth," Financial Times, March 25, 2004, p. 23.

Walsh, Fiona, "Can Woolies Survive?," Management Today, July 2002, pp. 48 +.

Whatley, Garrod, "Lighting-Up Time at Woolies," Chief Executive (London), December 1986, pp. 16 +.

Winkler, John K., Five and Ten: The Fabulous Life of F.W. Woolworth, London: Hale, 1941; reprinted, Freeport, N.Y.: Books for Libraries Press, 1970, 256 p.

"Woolworth: The Story of a Great Achievement," New Bond, March 1959.

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Woolworth Corporation

Woolworth Corporation

Woolworth Building
233 Broadway
New York, New York 10279-0003
U.S.A.
(212) 553-2000
Fax: (212) 553-2018

Public Company
Incorporated:
1905 as F. W. Woolworth & Co.
Employees: 82,000
Sales: $8.09 billion (1996)
Stock Exchanges: New York Boston Cincinnati Midwest Pacific Philadelphia Toronto Amsterdam Lausanne Basel Geneva Zurich
SICs: 5331 Variety Stores; 5611 Mens & Boys Clothing & Accessory Stores; 5621 Womens Clothing Stores; 5632 Womens Accessory & Specialty Stores; 5641 Childrens & Infants Wear Stores; 5943 Stationery Stores; 6719 Offices of Holding Companies, Not Elsewhere Classified

Woolworth Corporation, whose name is expected to be changed in late 1997, is a diversified multinational retailer with stores and support operations in North America, Europe, Australia, and Asia. The company runs more than 6,700 specialty units worldwide and about 700 general merchandise stores in Germany and Mexico. Woolworths best-performing specialty chains are the various Foot Locker athletic footwear and apparel concepts and the Northern Reflections specialty apparel format and its spinoffs, while the general merchandise area is still headed by the venerable Wool worths although that chain no longer exists in the United States where itand the company were founded.

Origins as First 5-and-10¢t Store

The companys founder, Frank Winfield Woolworth, parlayed the idea of the 5-and-100 store into an international retailing empire. Born in 1852 in Rodman, New York, and raised on a farm, he moved to Watertown, New York, in 1873 where he apprenticed and then clerked with Augsbury & Moore, a wholesaler and dry goods store. Wanting more money, Woolworth soon left Augsbury & Moore for A. Bushnell & Company, a local dry goods and carpet store. His new employer, however, found him a poor salesman and lowered his wages from $10 to $8 a week. In response Woolworth overworked himself, had a complete breakdown, and spent six months convalescing.

When Woolworth recovered in 1876, he returned to his former employer William Moore, whose business was now called Moore & Smith. There he concentrated on window displays. In 1878 Moore & Smith found itself with high debt and excess inventory. To raise money the store held a 50 sale. Smith and Woolworth laid a group of goods such as tin pans, washbasins, button-hooks, and dippers, along with surplus inventory, on a counter over which they hung a sign reading: Any Article on This Counter, 50. After the sale Frank Woolworth was convinced a 50 strategy could work on a broader basis.

In 1879 Woolworth left Moore & Smith. On February 22 of that year he opened his first Great 50 Store in Utica, New York. At first business was good, but as the 50 novelty faded, the stores poor location became a handicap and he closed it in early June. Still, he had repaid Moore & Smiths loan of $315.41, which he had used for his initial inventory, and had made $252.44 in new capital.

On June 21, 1879, Woolworth opened his second Great 50 Store in Lancaster, Pennsylvania. This time he had three windows on a main street and $410 worth of goods. The store was a success. The first day he sold 31 percent of stock. In succeeding months he changed the stores name, first to Five-and-Ten, and later to Wool worths. The increase to 100 allowed him to search out further bargains.

Woolworth soon began opening new outlets. Some stores succeeded, while others failed. By the mid-1880s, there were seven Wool worths in New York and Pennsylvania. Most were run by partner-managers. These menWool worths brother Charles Sumner Woolworth, cousin Seymour Horace Knox, former employer W. H. Moore, and Fred M. Kirbyran the stores and held a 50 percent interest. Frank Woolworth ran the initial store and took care of purchasing.

In succeeding years these partner-managers bought out Frank Woolworths shares and began opening chains on their own. Woolworth continued opening stores. After 1888 he did so completely with his own capital. In these new stores he entered into a profit-sharing agreement with managers.

While Woolworth owed much of his success to low prices, his treatment of the customer was also important. In the 1870s and 1880s, patrons usually had to ask for goods held behind the counter; prices varied according to the customer; and it was considered impolite to enter a store without buying. Woolworth changed all that. His merchandise sat on counters for everyone to see. His price was the same for everyone. He encouraged people to enter the store even if they were just looking.

Another reason for Woolworths success was the decline in wholesale prices during the first 12 years of Woolworths existence. This led to wider availability of goods in the 5-and-100 price range, wider margins, and higher profits.

As operations grew, Woolworth found he needed a New York City office from which he could govern his stores. In July 1886 he took an office on Chambers Street. Soon after, he began writing a daily general letter that went out to all store managers.

In 1888 Frank Woolworth contracted typhoid. Until then he had handled everything from accounting to ordering to inspecting stores; however, after two months in bed, he realized the importance of delegating authority. With that in mind, he chose Carson C. Peck to run day-to-day operations. Peck had been a fellow clerk at A. Bushnell & Co. and a partner-manager in Wool worths Utica, New York, store. He became Wool worths first general manager.

Freed of day-to-day operations, Woolworth made his first European buying trip in 1890. On his return, U.S. consumers flocked to obtain pottery from England and Scotland, Christmas decorations from Germany, and other goods from the great commercial fairs of Europe.

The same year, Woolworth established the approved list. On the approved list were goods that Woolworth would reorder for his managers. This system allowed managers the leeway to adjust stock for local preferences while at the same time benefiting from the chains buying power. In 1897 Woolworth opened his first Canadian store, in Toronto, Ontario. Three years later there were 59 Woolworths with sales of $5 million.

Tremendous Growth in Early 20th Century

By 1904 Woolworth was opening stores at a fantastic rate. He opened some stores from scratch. Others he converted from small chains he had bought. In 1905 he incorporated as F. W. Woolworth & Co. At this point Woolworth had $10 million in sales and 120 stores.

In 1909 Woolworth sent three associates to open the first of what was to be a hugely successful group of English stores, known as Three and Sixpence stores. In 1910 he appointed the first resident buyer in Germany, and in 1911 he opened his first overseas warehouse at Fuerth, Germany.

At this point competition began to increase from such retailers as J. G. McCrory and S. S. Kresge Company. Also, many former partner-managers had chains of their own. In 1912 Woolworth saw the opportunity to create a huge new entity. He merged with five other retailersW. H. Moore, C. S. Wool-worth, F. M. Kirby, S. H. Knox, and E. P. Charlton. All were former partner-managers except for Earle Perry Charlton, who had built a chain west of the Rocky Mountains. F. W. Wool-worth & Co. became the publicly traded F. W. Woolworth Co., a nationwide retailer with 596 stores and $52 million in sales. Frank Woolworth was chief stockholder and president.

The new retailing behemoth took residence in the 60-story neo-Gothic Woolworth building in New York City. Frank Woolworths office, within the $13.5 million Skyline Queen, was a replica of Napoleon Bonapartes Empire Room.

In 1915 Carson Peck died. Peck had been supervising day-to-day operations since 1888. Woolworth assumed Pecks duties, but the strain proved to be too much. On April 8, 1919, Woolworth himself died.

To succeed him as president the board named Hubert T. Parson, Woolworths first bookkeeper and later a company director and secretary-treasurer. The board also named Charles Sumner Woolworth, F. W. Woolworths brother, chairman of the board.

Expansion continued under Parson. The company sent its first buyers to Japan in 1919. In 1924 it opened stores in Cuba. Woolworth inaugurated a German operating subsidiary in 1926 and in 1927 opened its first German store. By the companys 50th anniversary in 1929, there were 2,247 Woolworth stores in the United States, Canada, Cuba, England, and Germany. Sales topped $303 million.

Company Perspectives:

Woolworth Corporation is a diversified global retailer operating specialty and general merchandise stores and related support facilities in North America, Europe, Australia, and Asia. Specialty formats include such chains as Foot Locker, Lady Foot Locker, Kids Foot Locker, and Champs Sports athletic footwear and apparel stores; the Northern Reflections, Northern Traditions, Northern Elements, and Northern Getaway apparel stores; and the After Thoughts jewelry stores and Kinney family shoe stores. The Company also operates the familiar Woolworth general merchandise stores in the United States and abroad.

The Companys 82,000 associates around the world are committed to providing their customers with quality merchandise at good value.

In the United States F. W. Woolworth was far and away the biggest five-and-ten retailer. Its 2,100 U.S. stores had 1929 sales of $273 million. By comparison, J. G. McCrory had about 220 stores with $40 million in sales, and S. S. Kresge had about 500 stores with $147 million in sales.

The Great Depression caused the first decline in the companys sales since 1883, reaching a low of $250 million in 1932. In 1931 the company sold off part of its British operations, allowing that subsidiary to become a public company.

In 1932 Hubert Parsons retired and Byron D. Miller became the companys third president. Miller had worked his way up in the company and had helped start Woolworths U.K. operations. Among Millers first acts was to raise the 100 price ceiling to 200. Woolworth was the last five-and-ten chain to raise its prices.

After three years in office, Miller retired and Charles Deyo became president. On taking office in 1935, Deyo and the board of directors removed all arbitrary price limits.

Sales turned upward during the late 1930s, but World War II posed new problems. Nearly half of Wool worths male employees entered the Armed Forces, as did many female employees. During the war, women managed 500 stores. Demand expanded. Supplies were limited, but consumers tolerated substitutions, and because the war meant labor shortages, consumers also tolerated less service.

Entered Prolonged Slump Following World War II

In 1946 Alfred Corn well succeeded Deyo. Under Deyo and Corn well, Woolworth had difficulties adapting to the postwar rush of discount houses, supermarkets, and shopping centers. According to a 1965 Duns Review article, Woolworth was mired in a depression mentality. It was keeping costs down and prices low at a time when customers wanted service and when prosperity made prices a secondary consideration.

The situation began to deteriorate, and in 1953 earnings hit a five-year low of $29.8 million. Concerned with what was happening, three board membersAllan P. Kirby, Seymour H. Knox, and Fremont C. Peckforced Woolworth to create a new forward-looking finance and policy committee to combat what they saw as the managements overly conservative tendencies.

Woolworths British operation was having similar problems. Consumers were abandoning the stores for supermarkets and rivals such as Marks & Spencer, British Home Stores, and Littlewoods. In response Woolworth increased the number of stores in England but did little to upgrade the existing outlets.

In 1954 James T. Leftwich became president. Leftwich addressed some of Woolworths problems and spent $110 million to expand, modernize, and move stores. In 1956 Wool-worth opened two stores in Mexico City and in 1957 began operations in Puerto Rico. Much was left to be done, however, under the leadership of Robert C. Kirkwood, who took over as president in 1958.

Under Kirkwood, Woolworth raised price limits and added profitable soft goods such as clothing and fabrics. Kirkwood also introduced self-service, opened hundreds of new stores, enlarged or relocated hundreds of others, and pushed Woolworth into shopping centers. Further, he increased advertising, instituted formal job training, and shortened hours and improved benefits for traditionally underpaid sales people, a move that reduced costly employee turnover from 43 percent to 19 percent.

Yet while Kirkwood was rejuvenating Woolworth, competitors such as Kresge and W. T. Grant had already overhauled their stores and were moving into new lines and new locations. Each was able to surpass Woolworth in earnings growth.

In fact, while Woolworth sales surpassed $1 billion for the first time in 1960, U.S. earnings dropped from $14 million in 1960 to $12.6 million in 1963. It was only the return from British Woolworth that enabled consolidated earnings to keep moving up. British stockholders later accused the U.S. board of milking the English operation without infusing the proper amount of capital.

Diversified in 1960s and 1970s

Woolworth and Kresge both sought new types of stores that would better fit the changing retail environment. In 1962 Wool-worth opened the first Woolco, and S. S. Kresge opened the first Kmart. Each offered the services of a full-line department store and was very large, in some locations more than 100,00 square feet. Woolworth had 17 Woolco stores by 1965.

As the 1960s continued, Woolworth expanded, diversified, and modernized. In 1965 it acquired the G. R. Kinney Corporation for $39 million. Founded by George Romanta Kinney in 1894, Kinney had 584 family shoe stores in 45 states.

The same year, Lester A. Burcham became president. Under Burcham, Woolworth expanded operations into Spain and established a buying office in Tokyo. Two years later, it opened the first Woolco in England.

In 1968 sales topped $2 billion, and in 1969 Woolworth acquired Williams the Shoemen, an Australian shoe store chain that has since become a dominant force in Australian shoe retailing with more than 460 stores ranging from high fashion to athletic and family footwear. Also in 1969, Woolworth acquired Richman Brothers Company, a manufacturer and retailer of mens and boys clothing. Finally, as part of a 90th anniversary celebration, Woolworth replaced the old Diamond W logo with a modern looking white W on a light blue field.

Yet Woolworth was still not growing at the rate of its competitors. By 1970 sales at Kresge were running essentially neck and neck with Woolworth. One problem was British Woolworth. In 1965 Woolworths 52.7-percent-owned subsidiary, F. W. Woolworth Ltd., had contributed 50 percent of the parent companys profits, but during the late 1960s it began a steep decline. The reasons included a lack of investment, a devaluation of the pound, and an increase in employment taxes. By 1969 the British subsidiary was contributing just 30 percent of profits. In an effort to gain market share, British management cut prices. Sales grew, but profits fell.

John S. Roberts, who became Woolworths president in 1970, also needed to address problems at Woolco, which was performing at nowhere near the rate of Kmart. His solution was to consolidate Woolworth and Woolco in one division in 1972. Rather than providing economies, however, the consolidation only blurred the identity of each chain. Woolworths 1973 sales were $3.7 billion; Kresges were $4.6 billion, 90 percent generated by Kmart. A positive event occurred, however, in 1974, when the Kinney shoe division opened the first two Foot Locker stores, athletic-shoe retailers that would later prove highly profitable.

With stock prices on the wane, the board recognized the need for change and in 1975 named outsider Edward F. Gibbons president. Gibbons in turn named W. Robert Harris the first president of the U.S. Woolworth and Woolco Division. In 1978 consolidated annual sales topped $6 billion, of which Kinney, growing at a rate of 18 to 20 percent a year, contributed $800 million. Also in 1978, Harris became president and Gibbons became chief executive officer.

Juggling of Store Lineup Continued in 1980s and Early 1990s

While Woolco continued its sluggish growth and Wool-worth stores suffered neglect, F. W. Woolworth Co. continued diversifying. In 1979 Woolworth opened the first J. Brannam, a mens clothing store whose name stood for just brand names. J. Brannam was a quick moneymaker and often stood within or beside otherwise lackluster Woolco department stores. No matter how much the management tinkered, the problems of Woolco refused to go away. After the stores lost $19 million in 1981, Harris and Gibbons hired Bruce G. Albright to revive the ailing chain. Albright, who had come from competitor Dayton Hudsons Target stores, had a plan to revive Woolco, but company projections still saw the stores losing money. After Woolco lost $21 million during the first six months of 1982, Gibbons decided to shut down all 336 Woolcos in the United States, shrinking the $7.2 billion company 30 percent and laying off 25,000 employees. Closing costs were estimated at $325 million.

In the fall of 1982, Woolworth disclosed plans to sell its interest in British Woolworth to a syndicate of English investors, for $279 million. One analyst, quoted in Business Week, October 11, 1982, blamed British Wool worths failure on the U.S. parent, saying, The American Woolworth has been milking the British unit for years, insisting on high dividend payout that has forced it to scrimp on investment and to take on more and more debt.

Analysts, however, were pleased with the company that remained. Left were the profitable, but shaky, 1,300 variety stores, Richman Brothers, and Kinney Shoe Corporationa $1.1 billion division that had done well with Kinney, Foot Locker, a womens clothing store known as Susies Casuals, and the newly created and profitable J. Brannam. Woolcos closing, however, left 28 of the 41 J. Brannam outlets homeless.

Edward F. Gibbons died suddenly in October 1982. Contrary to expectations and much to the chagrin of younger talent, the board named company veteran John W. (Bud) Lynn chief executive officer. As a variety-store man, Lynn paid close attention to Woolworths. He changed merchandise, reducing the number of high-priced items such as appliances and dresses and expanding basic lines like candy, and health and beauty aids. He arranged stores in arrow patterns to cut down on unprofitable corners.

Lynn pushed the company to adopt a set of strategic priorities that angled Woolworth away from money-losing businesses and toward specialty retailing. Kinneys Canadian operation had started the remarkably successful Lady Foot Locker in 1982, and in 1983 Woolworth paid $27 million for Holtzmans Little Folk Shop, a full-price childrens clothing merchandiser and its subsidiary, Kids Mart, a discount operation.

Lynn retired in 1987, and the board named Harold Sells as the new chief executive officer. Sells continued to push Wool-worths profitable mall-based specialty operations. Managers sought out new ideas for stores and those that the company liked were tried. If the stores were profitable, it opened more. If they were not profitable, the company tried another idea at the same location.

In 1990 Woolworth opened 896 stores and closed 351. Many of the new ventures were specialty stores, such as Kinneys, Kids Marts, Foot Lockers, and Lady Foot Lockers. The latter two sold a full 20 percent of all brand-name athletic footwear in the United States in the late 1980s. The 40 types of specialty stores included After Thoughts, seller of costume jewelry and handbags; Champs, seller of athletic goods and apparel; and Wool-worth Express, seller of the fastest-moving goods of a traditional Woolworth.

In 1993 Sells retired and was replaced as CEO by CFO William Lavin, who quickly proceeded to make additional moves pointing toward the elimination of the companys general merchandise stores in favor of an exclusive focus on specialty formats. Four hundred Woolworths were closed in the United States and 122 Woolco stores in Canada were sold to Wal-Mart, terminating Woolco altogether. Woolworth also sold 300 underperforming Kinney outlets and liquidated the 286-store Richman Brothers/Anderson-Little mens and womens clothing stores. Along with the nearly 1,000 stores, about 13,000 jobs were also eliminated. As a result of these moves, the company recorded a $558 million charge resulting in a net 1993 loss of $495 million.

These radical moves had barely been made when an accounting scandal arose in early 1994, revolving around alleged false reporting of quarterly results during 1993. Several lawsuits were filed which were eventually combined into a class-action lawsuit. This suit had appeared to be settled by mid-1997 when Woolworth agreed to make undisclosed cash payments to affected shareholders. Later in 1994 Lavin was forced out and Roger Farah became chairman and CEO in December 1994.

Mid-1990s Rebuilding and Restructuring

Farah, a longtime department store manager who had most recently been president of R. H. Macy & Co., took over a Woolworth in shambles. Thanks to dwindling profits, by early 1995 the company was nearly out of cash and short-term debt had swelled to $853 million. Consequently, Farahs first task was to improve cash flow in 1995. To do so, he broke Wool-worths string of 83 straight years of dividends; restructured company debt, reducing total debt by $475 million and shifting $290 million of short-term debt to longer-term financing; reduced operating spending by $100 million; wrote off $241 million of inventory; and began to sell off nonstrategic chains and real estate. Early in 1995 Woolworth sold the Rx Place chain of pharmacies for $37 million and the 331 Kids Mart/ Little Folks childrens clothing stores to the LFS Acquisition investor group for $15 million. Two other Canadian chains Karuba and Canary Islandwere also closed during the year. The various charges incurred as a result of these actions led to a net loss of $164 million.

In 1996 Woolworth continued to restructure. Short-term debt was eliminated altogether and total debt was reduced an additional $116 million. Another $100 million in operating spending was eliminated. And $222 million in cash was generated from the disposal of additional nonstrategic chains and real estate. Among the divestments were the Accessory Lady chain in the United States; the Silk & Satin lingerie chain in Canada; the Lady Plus apparel chain, the Rubin jewelry chain, the Moderna shoe store chain, and the New Yorker Sud jeans business, all in Germany; and the Gallery shoe store chain in Australia. All told, 1,443 unproductive stores were disposed of in 1995 and 1996.

In the midst of these moves, institutional investor Greenway Partners forced to a vote a shareholder proposal to spin off Woolworths Athletic Group, which included the profitable and growing Foot Locker and Champs chains. In a boost to Farahs attempt at rebuilding the company, the plan was soundly defeated.

Unlike his predecessor, Farah was not ready to give up on the neglected Woolworths chain. To better monitor and plan sales, point-of-sale equipment was installed at all locations in 1995 and purchasing, pricing policies, and promotional strategies were all centralized. In 1996 the chain began testing new formats featuring higher-quality (and higher-priced) merchandise, with more brand names. Based on customer surveys, the prototype stores were aimed at the time-pressed and budget-minded working woman looking for products for herself, her home, and her family. So, rather than carrying everything from hamsters to beach chairs, the product mix included more cosmetics and house wares. The antiquated lunch counters were replaced by small coffee bars. The three-store 1996 test was successful enough to justify an expansion of the test to 13 more stores in 1997.

Early in 1997 Woolworth spent $146 million to acquire Wausau, Wisconsin-based Eastbay Inc., a catalog company specializing in athletic footwear. Woolworth and Eastbay planned to develop catalogs for such Woolworth retail brands as Foot Locker and Champs. Also in 1997, in a telling psychological blow, Woolworth was replaced by Wal-Mart on the Dow Jones Industrial Average.

Overall, Woolworths fortunes were improving in the late 1990s, as the company posted a net profit of $169 million in 1996. The company appeared to be on track with the paring back of its unwieldy portfolio of retail formats. Nevertheless, 1997 brought not only the companys ouster from the DJIA but also accelerating losses for the Woolworths chaina $24 million operating loss for the first quarter as compared to a loss of $37 million for all of 1996. Unable to withstand such hemorrhaging long enough to turn the chain around, Woolworth announced on July 17, 1997, that it would close its more than 400 five-and-dime stores in the United States, lay off about 9,200 Wool worths workers (about 11 percent of the companys workforce), and take a $223 million charge for the discontinued operations. The company planned to convert about 100 of the Wool worths locations to Foot Locker, Champs Sports, and other specialty formats. Although the Woolworths chain had seen the final chapter written on its history in the United States, the chains saga would continue on in Mexico and Germany, where about 700 of the five-and-dimes still operated. The company also announced that it planned to change its name to better reflect its global specialty retailing formats, though this change would not occur until later in 1997. In more ways than one, therefore, the Woolworth Corporation of the early 21st century would certainly be quite different from that of the 1980s and early 1990s.

Principal Subsidiaries

Cliftex; Eastbay Inc.; Kinney Shoe Corporation; Team Edition Apparel, Inc.; Woolworth Overseas Corp.; Woolworth World Trade Corp.; Foot Locker Europe B.V. (Netherlands); Kinney Shoes (Australia), Ltd.; Kinney Shoes of Canada, Ltd.; Retail Company of Germany, Inc.; Woolworth Canada Inc.; Wool-worth Mexicana, S.A. de C.V. (Mexico).

Further Reading

Berman, Phyllis, and Caroline Waxier, Woolworths Woes, Forbes, August 14, 1995, pp. 47-48.

Biesada, Alexandra, Dumping on the Dime Store, Financial World, October 30, 1990, p. 62.

Bird, Laura, Hamsters Get Heave-Ho in New Five-and-Tens, Wall Street Journal, September 26, 1996, pp. B1, B10.

____, Woolworth Is Hoping to Score in Sportswear, Wall Street Journal, March 12, 1997, pp. B1, B6.

____, Woolworth Corp. to Post a Charge and Cut 9,200 Jobs, Wall Street Journal, July 18, 1997, p. C16.

Bongiorno, Lori, Lost in the Aisles at Woolworths, Business Week, October 30, 1995, pp. 76, 78.

Gill, Penny, Sells: Key Player in Woolworth Renaissance, Stores, May 1991, p. 24.

Miller, Annetta, A Dinosaur No More: Woolworth Corp. Leaves Dime Stores Far Behind, Newsweek, January 4, 1993, pp. 54-55.

Nichols, John P., Skyline Queen and the Merchant Prince, New York: Pocket Books, 1973.

100th Anniversary, 1879-1979, New York: F. W. Woolworth Co., 1979.

Saporito, Bill, Woolworth to Rule the Malls, Fortune, June 5, 1989, p. 145.

Winkler, John K., Five and Ten: The Fabulous Life of F. W. Woolworth, Freeport, N.Y.: Books for Libraries Press, 1970 (reprint of 1940 ed.).

Woolworths First 75 Years: The Story of Everybodys Store, New York: F. W. Woolworth Co., 1954.

Zinn, Laura, Why Business Stinks at Woolworth, Business Week, November 25, 1991, pp. 72, 76.

Jordan Wankoff

updated by David E. Salamie

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Woolworth Corporation

Woolworth Corporation

Woolworth Building
233 Broadway
New York, New York 10279
U.S.A.
(212) 553-2000
Fax: (212) 553-2152

Public Company
Incorporated: 1905 as F.W. Woolworth & Co.
Employees: 142,000
Sales: $9.79 billion
Stock Exchanges: New York Toronto

Woolworth Corporation is a multinational retailer with stores and support operations in 17 countries on 4 continents. The company runs more than 7,000 specialty units and 1,600 general merchandise stores in the United States, Canada, Germany, Australia, Belgium, and the Netherlands. Woolworth also has 12 buying offices throughout Asia and Mexico and 9 manufacturing plants producing footwear and apparel.

Its founder, Frank Winfield Woolworth, parlayed the idea of the 5-and-1OC store into an international retailing empire. Born in Rodman, New York, and raised on a farm, he moved to Watertown, New York, where he apprenticed and then clerked with Augsbury & Moore, a wholesaler and dry goods store. Wanting more money, Woolworth soon left Augsbury & Moore for A. Bushnell & Company, a local dry goods and carpet store. His new employer, however, found him a poor salesman and lowered his wages from $10 to $8 a week. In response Woolworth overworked himself, had a complete breakdown, and spent six months convalescing.

When Woolworth recovered in 1876, he returned to his former employer William Moore, whose business was now called Moore & Smith. There he concentrated on window displays. In 1878 Moore & Smith found itself with high debt and excess inventory. To raise money the store held a 5C sale. Smith and Woolworth laid a group of goods such as tin pans, washbasins, button-hooks, and dippers, along with surplus inventory, on a counter over which they hung a sign reading: Any Article on This Counter, 5C. After the sale Frank Woolworth was convinced a 5C strategy could work on a broader basis.

In 1879 Woolworth left Moore & Smith. On February 22 of that year he opened his first Great 5C Store in Utica, New York. At first business was good, but as the 5C novelty faded, the stores poor location became a handicap and he closed it. Still, he had repaid Moore & Smiths loan of $315.41, which he had used for his initial inventory, and had made $252.44 in new capital.

On June 21, 1879, Woolworth opened his second Great 5C Store in Lancaster, Pennsylvania. This time he had three windows on a main street and $410 worth of goods. The store was a success. The first day he sold 31% of stock. In succeeding months he changed the stores name, first to Five-and-Ten, and later to Woolworths. The increase to IOC allowed him to search out further bargains.

Woolworth soon began opening new outlets. Some stores succeeded, while others failed. By the mid-1880s, there were seven Woolworths in New York and Pennsylvania. Most were run by partner-managers. These menWoolworths brother Charles Sumner Woolworth, cousin Seymour Horace Knox, former employer W. H. Moore, and Fred M. Kirbyran the stores and held a 50% interest. Frank Woolworth ran the initial store and took care of purchasing.

In succeeding years these partner-managers bought out Frank Woolworths shares and began opening chains on their own. Woolworth continued opening stores. After 1888 he did so completely with his own capital. In these new stores he entered into a profit-sharing agreement with managers.

While Woolworth owed much of his success to low prices, his treatment of the customer was also important. In the 1870s and 1880s, patrons usually had to ask for goods held behind the counter; prices varied according to the customer; and it was considered impolite to enter a store without buying. Woolworth changed all that. His merchandise sat on counters for everyone to see. His price was the same for everyone. He encouraged people to enter the store even if they were just looking.

Another reason for Woolworths success was the decline in wholesale prices during the first 12 years of Woolworths existence. This led to wider availability of goods in the 5-and-lOC price range, wider margins, and higher profits.

As operations grew, Woolworth found he needed a New York City office from which he could govern his stores. In July 1886 he took an office on Chambers Street. Soon after, he began writing a daily general letter that went out to all store managers.

In 1888 Frank Woolworth contracted typhoid. Until then he had handled everything from accounting to ordering to inspecting stores; however, after two months in bed, he realized the importance of delegating authority. With that in mind, he chose Carson C. Peck to run day-to-day operations. Peck had been a fellow clerk at A. Bushnell & Co. and a partner-manager in Woolworths Utica, New York, store. He became Woolworths first general manager.

Freed of day-to-day operations, Woolworth made his first European buying trip in 1890. On his return, U.S. consumers flocked to obtain pottery from England and Scotland, Christmas decorations from Germany, and other goods from the great commercial fairs of Europe.

The same year, Woolworth established the approved list. On the approved list were goods that Woolworth would reorder for his managers. This system allowed managers the leeway to adjust stock for local preferences while at the same time benefiting from the chains buying power.

In 1897 Woolworth opened his first Canadian store, in Toronto, Ontario. Three years later there were 59 Woolworths with sales of $5 million.

By 1904 Woolworth was opening stores at a fantastic rate. He opened some stores from scratch. Others he converted from small chains he had bought. In 1905 he incorporated as F. W. Woolworth & Co. At this point Woolworth had $10 million in sales and 120 stores.

In 1909 Woolworth sent three associates to open the first of what was to be a hugely successful group of English stores. In 1910 he appointed the first resident buyer in Germany, and in 1911 he opened his first overseas warehouse at Fuerth, Germany.

At this point competition began to increase from such retailers as J. G. McCrory and S. S. Kresge Company. Also, many former partner-managers had chains of their own. In 1912 Woolworth saw the opportunity to create a huge new entity. He merged with five other retailersW. H. Moore, C. S. Woolworth, F. M. Kirby, S. H. Knox, and E. P. Charlton. All were former partner-managers except for Earle Perry Charlton, who had built a chain west of the Rocky Mountains. F. W. Woolworth & Co. became F. W. Woolworth Co., a nationwide retailer with 596 stores and $52 million in sales. Frank Woolworth was chief stockholder and president.

The new retailing behemoth took residence in the 60-story neo-Gothic Woolworth building in New York City. Frank Woolworths office, within the $13.5 million Skyline Queen, was a replica of Napoleon Bonapartes Empire Room.

In 1915 Carson Peck died. Peck had been supervising day-to-day operations since 1888. Woolworth assumed Pecks duties, but the strain proved to be too much. On April 8, 1919, Woolworth himself died.

To succeed him as president the board named Hubert T. Parson, Woolworths first bookkeeper and later a company director and secretary-treasurer. The board also named Charles Sumner Woolworth, F. W. Woolworths brother, chairman of the board.

Expansion continued under Parson. The company sent its first buyers to Japan in 1919. In 1924 it opened stores in Cuba. Woolworth inaugurated a German operating subsidiary in 1926 and in 1927 opened its first German store. By the companys 50th anniversary in 1929, there were 2,247 Woolworth stores in the United States, Canada, Cuba, England, and Germany. Sales topped $303 million.

In the United States F. W. Woolworth was far and away the biggest five-and-ten retailer. Its 2,100 U.S. stores had 1929 sales of $273 million. By comparison, J. G. McCrory had about 220 stores with $40 million in sales, and S. S. Kresge had about 500 stores with $147 million in sales.

The Great Depression caused the first decline in the companys sales since 1883, reaching a low of $250 million in 1932. In 1931 the company sold off part of its British operations, allowing that subsidiary to become a public company.

In 1932 Hubert Parsons retired and Byron D. Miller became the companys third president. Miller had worked his way up in the company and had helped start Woolworths U.K. operations. Among Millers first acts was to raise the IOC price ceiling to 20C. Woolworth was the last five-and-ten chain to raise its prices.

After three years in office, Miller retired and Charles Deyo became president. On taking office in 1935, Deyo and the board of directors removed all arbitrary price limits.

Sales turned upward during the late 1930s, but World War II prosed new problems. Nearly half of Woolworths men employees entered the armed forces, as did many women employees. During the war, women managed 500 stores. Demand expanded. Supplies were limited, but consumers tolerated substitutions, and because the war meant labor shortages, consumers also tolerated less service.

In 1946 Alfred Cornwell succeeded Deyo. Under Deyo and Cornwell, Woolworth had difficulties adapting to the postwar rush of discount houses, supermarkets, and shopping centers. According to a 1965 Duns Review article, Woolworth was mired in a depression mentality. It was keeping costs down and prices low at a time when customers wanted service and when prosperity made prices a secondary consideration.

The situation began to deteriorate, and in 1953 earnings hit a five-year low of $29.8 million. Concerned with what was happening, three board membersAllan P. Kirby, Seymour H. Knox, and Fremont C. Peckforced Woolworth to create a new forward-looking finance and policy committee to combat what they saw as the managements overly conservative tendencies.

Woolworths British operation was having similar problems. Consumers were abandoning the stores for supermarkets and rivals such as Marks & Spencer, British Home Stores, and Littlewoods. In response Woolworth increased the number of stores in England but did little to upgrade the existing outlets.

In 1954 James T. Leftwich became president. Leftwich addressed some of Woolworths problems and spent $110 million to expand, modernize, and move stores. In 1956 Woolworth opened two stores in Mexico City and in 1957 began operations in Puerto Rico. Much was left to be done, however, under the leadership of Robert C. Kirkwood, who took over as president in 1958.

Under Kirkwood, Woolworth raised price limits and added profitable soft goods such as clothing and fabrics. Kirkwood also introduced self service, opened hundreds of new stores, enlarged or relocated hundreds of others, and pushed Woolworth into shopping centers. Further, he increased advertising, instituted formal job training, and shortened hours and improved benefits for traditionally underpaid sales people, a move that reduced costly employee turnover from 43% to 19%.

Yet while Kirkwood was rejuvenating Woolworth, competitors such as Kresge and W. T. Grant had already overhauled their stores and were moving into new lines and new locations. Each was able to surpass Woolworth in earnings growth.

In fact, while Woolworth sales surpassed $1 billion for the first time in 1960, U.S. earnings dropped from $14 million in 1960 to $12.6 million in 1963. It was only the return from British Woolworth that enabled consolidated earnings to keep moving up. British stockholders later accused the U.S. board of milking the English operation without infusing the proper amount of capital.

Woolworth and Kresge both sought new types of stores that would better fit the changing retail environment. In 1962 Woolworth opened the first Woolco, and S.S. Kresge opened the first K mart. Each offered the services of a full-line department store and was very large, in some locations more than 100,00 square feet. Woolworth had 17 Woolco stores by 1965.

As the 1960s continued, Woolworth expanded, diversified, and modernized. In 1965 it acquired the G.R. Kinney Corporation for $39 million. Founded by George Romanta Kinney in 1894, Kinney had 584 family shoe stores in 45 states.

The same year, Lester A. Burcham became president. Under Burcham, Woolworth expanded operations into Spain and established a buying office in Tokyo. Two years later, it opened the first Woolco in England.

In 1968 sales topped $2 billion, and in 1969 Woolworth acquired Williams the Shoemen, an Australian shoe store chain that has since become a dominant force in Australian shoe retailing with more than 460 stores ranging from high fashion to athletic and family footwear. Also in 1969, Woolworth acquired Richman Brothers Company, a manufacturer and retailer of mens and boys clothing. Finally, as part of a 90th anniversary celebration, Woolworth replaced the old Diamond W logo with a modern looking white W on a light blue field.

Yet Woolworth was still not growing at the rate of its competitors. By 1970 sales at Kresge were running essentially neck and neck with Woolworth. One problem was British Woolworth. In 1965 Woolworths 52.7%-owned subsidiary, F. W. Woolworth Ltd., had contributed 50% of the parent companys profits, but during the late 1960s it began a steep decline. The reasons included a lack of investment, a devaluation of the pound, and an increase in employment taxes. By 1969 the British subsidiary was contributing just 30% of profits. In an effort to gain market share, British management cut prices. Sales grew, but profits fell.

John S. Roberts, who became Woolworths president in 1970, also needed to address problems at Woolco, which was performing at nowhere near the rate of K mart. His solution was to consolidate Woolworth and Woolco in one division in 1972. Rather than providing economies, however, the consolidation only blurred the identity of each chain. Woolworths 1973 sales were $3.7 billion; Kresges were $4.6 billion, 90% generated by K mart. A positive event occurred, however, in 1974, when the Kinney shoe division opened the first two Foot Locker stores, athletic-shoe retailers that would later prove highly profitable.

With stock prices on the wane, the board recognized the need for change and in 1975 named outsider Edward F. Gibbons president. Gibbons in turn named W. Robert Harris the first president of the U.S. Woolworth and Woolco Division. In 1978 consolidated annual sales topped $6 billion, of which Kinney, growing at a rate of 18% to 20% a year, contributed $800 million. Also in 1978, Harris became president and Gibbons became chief executive officer.

While Woolco continued its sluggish growth and Woolworth stores suffered neglect, F. W. Woolworth Co. continued diversifying. In 1979 Woolworth opened the first J. Brannam, a mens clothing store whose name stood for just brand names. J. Brannam was a quick money-maker and often stood within or beside otherwise lackluster Woolco department stores. No matter how much the management tinkered, the problems of Woolco refused to go away. After the stores lost $19 million in 1981, Harris and Gibbons hired Bruce G. Albright to revive the ailing chain. Albright, who had come from competitor Dayton Hudsons Target stores, had a plan to revive Woolco, but company projections still saw the stores losing money well into 1984. After Woolco lost $21 million during the first six months of 1982, Gibbons decided to shut down all 336 Woolcos in the United States, shrinking the $7.2 billion company 30% and laying off 25,000 employees. Closing costs were estimated at $325 million.

In the fall of 1982, Woolworth disclosed plans to sell its interest in British Woolworth to a syndicate of English investors, for $279 million. One analyst, quoted in Business Week, October 11, 1982, blamed British Woolworths failure on the U.S. parent, saying, The American Woolworth has been milking the British unit for years, insisting on high dividend payout that has forced it to scrimp on investment and to take on more and more debt.

Analysts, however, were pleased with the company that remained. Leftwere the profitable, but shaky, 1,300 variety stores, Richman Brothers, Kinney Shoe Corporationa $1.1 billion division that had done well with Kinney, Foot Locker, a womens clothing store known as Susies Casuals, and the newly created and profitable J. Brannam. Woolcos closing, however, left 28 of the 41 J. Brannam outlets homeless.

Edward F. Gibbons died suddenly in October 1982. Contrary to expectations and much to the chagrin of younger talent, the board named company veteran John W. (Bud) Lynn chief executive officer. As a variety-store man, Lynn paid close attention to Woolworths. He changed merchandise, reducing the number of high-priced items such as appliances and dresses and expanding basic lines like candy, and health and beauty aids. He arranged stores in arrow patterns to cut down on unprofitable corners.

Lynn pushed the company to adopt a set of strategic priorities that angled Woolworth away from money-losing businesses and toward specialty retailing. Kinneys Canadian operation had started the remarkably successful Lady Foot Locker in 1982, and in 1983 Woolworth paid $27 million for Holtzmans Little Folk Shop, a full-price childrens clothing merchandiser and its subsidiary, Kids Mart, a discount operation.

Lynn retired in 1987, and the board named Harold Sells as the new chief executive officer. Sells continued to push Woolworths profitable mall-based specialty operations. Managers sought out new ideas for stores and those that the company liked were tried. If the stores were profitable, it opened more. If they were not profitable, the company tried another idea at the same location.

In 1990 Woolworth opened 896 stores and closed 351. Many of the new ventures were specialty stores, such as Kinney s, Kids Marts, Foot Lockers, and Lady Foot Lockers. The latter two sold a full 20% of all brand-name athletic footwear in the United States in the late 1980s. The 40 types of specialty stores included Afterthoughts, which sells costume jewelry and handbags; Champs, which sells athletic goods and apparel; and Woolworth Express, which sells the fastest-moving goods of a traditional Woolworth. In 1990 Woolworth opened a store in what had been East Germany, in the city of Halle, where a Woolworth store had been located before World War II. Woolworth was the first U.S. retailer to return to the former East Germany.

Principal Subsidiaries

Holtzmans Little Folk Shop, Inc.; Little Folk Shop Inc.; Kinney Shoe Corp.; Retail Company of Germany, Inc.; The Richman Brothers Company; Rx Place, Inc.; F.W. Woolworth Co.; F.W. Woolworth Co. Limited, Canada; Woolworth Overseas Corp.; Woolworth Mexicana, S.A. de C.V. (Mexico, 49%); Kids Mart Inc.; Randy River, Inc.; Northern Reflections Inc.; Team Edition Apparel, Inc.; Foot Locker Belgium N.V.; Foot Locker Europe B.V. (Netherlands); Foot Locker U.K. Limited; Woolworth World Trade Corp.

Further Reading

Woolworths First 75 Years: The Story of Everybodys Store, New York, F.W. Woolworth Company, 1954; Nichols, John P., Skyline Queen and the Merchant Prince, New York, Pocket Books, 1973.

Jordan Wankoff

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