Short-termism killed Woolworths

In a previous article (Retail Week, January 29) I promised to return to the Woolworths’ issue - was its fate an historic inevitability? History had stacked the odds against its survival. In the first place it had spent too long as a small overseas subsidiary of a US ‘giant’, whose management had no real interest in, nor understanding of, the UK retail market at a time when global markets and multinational sourcing were embryonic and a successful multinational retailer was science fiction.

Then, when in 1982 it got independent UK management, it inherited another handicap - it was part of a fast growing conglomerate (later to be re-christened Kingfisher), which already owned a small DIY chain, B&Q. Woolworths was primarily perceived as a property-rich cash cow to fund the expansion and acquisition of much more exciting growth businesses - Comet, Superdrug, Darty, etc. Woolworths’ own performance was secondary and, as can happen in any large conglomerate, an individual subsidiary can lack the resources, visibility and motivation to maximise its potential.

By the time demerger promised a new independent future, the surprising thing was that Woolworths actually still existed let alone was seen to be a good investment. The latter dictated a cautious strategy and above-average dividend payments to shareholders while management not surprisingly bowed to City short termism and focused on Woolworths’ perceived strengths - entertainment, toys, children’s clothes, confectionery - rather than the repositioning required to build a sustainable profitable business. The strategy was flawed because the areas of strength were lower margin and most vulnerable to competitive pressures. The focus should have been on higher margin defensible areas, eg, household items and local/convenience rather than major high street locations. The great lost opportunity was not to have re-introduced food and perhaps pre-empt much of the convenience store development by the major grocers.

However, this would have been a difficult sell to investors, would not have yielded immediate profits and would have been perceived by investors as high risk. It sad that today’s market inhibits risk and demands short-term performance. The latter is not necessarily positively correlated with long-term performance and in Woolworths’ case this was especially true. I am reminded of Sir Stuart Hampson, the ex-chairman of John Lewis, telling me had John Lewis Partnership been a ‘normal’ public company it would have been forced to sell or close Waitrose in the early 1990s.

A survival strategy could have been implemented even at the 11th hour but it would have required radical surgery and time. However, unlike the banks or the car industry, it was not too big to fail. The retail trade is a Cinderella industry yet politically it is just not on the radar except when politicians are looking to score cheap points ahead of elections.

The simple truth is that the majority of retail employees are part-time and female and these are not seen to be jobs that matter. An education process is long overdue, seemingly for some retail chief executives as well as the politicians.