The failure of Woolworths has (naturally) attracted a huge amount of comment and analysis, but there is one general lesson about retailers that I think needs to be highlighted.
The weakness of Woolworths has long been obvious — I was writing research slating it from its demerger from Kingfisher (the nice thing about the credit crunch is how many opportunities to say "I told you so" I have got). Woolies could not compete with supermarkets on prices, or with specialists in the range it stocked. It simply did not work any more.
The distribution business looked superficially sounder, but its dependence on sales to the retail business (the reason Woolworths bought it in the first place) meant that they sank together.
The more interesting question is why Woolworths' attempts to reinvent its retail business failed. A huge range of new formats: bigger, out of town shops (Big W), specialist shops for music, children's' shops, American style Woolworths General Store and others. None of them succeeded
This could be attributed to bad management. In the circumstances Woolworths' management are hardly to be congratulated, but the real moral is that retail formats are very difficult to get right.
If a retailer's format is no longer working, it is very difficult to turn the business around. Conversely a retailer that has hit upon a format that really works is likely to achieve sustained success. Spotting a small retailer with a really good format early on is an excellent way of finding shares capable of sustained organic growth.
Comments
MonevatorI watched the local Woolworths final closing down day - they literally sold the fixtures and fittings off the wall. Sad but also kind of awesome to see creative destruction at work.