Chainstore Massacre

The death knell has sounded for FW Woolworth amid severe profit losses. While other US discounters are faring well, its image is stuck in the past. So after 118 years the Woolworth name is disappearing.

If killing your father is patricide and killing your mother is matricide then what is the wholesale slaughter of a US family institution called?

FW Woolworth is dead in its home market – the States. Killed by its parent company the Woolworth Corporation, which is closing 300 stores, converting another 100 and making 9,200 people redundant before dropping the Woolworth name completely by the end of the year. This erases the 118-year association with its founder Frank Winfield Woolworth.

Within 12 months New York’s Woolworth Building will be the only reminder of a different era in the US – one where the Woolworth name once dominated discount retailing. General merchandise stores in Canada, Germany and Mexico will remain open while stores in 35 US states, Puerto Rico and the US Virgin Islands close.

The UK stores, owned by the Kingfisher Group, are unaffected by the closure decision. The Woolworth Corporation is turning its attention to its athletics and specialist chains.

The Corporation will have 7,200 stores worldwide after the closures – owning chains including Foot Locker, Northern Reflections, After Thoughts and Champs Sports. Underlining a shift in the Corporation’s emphasis, Woolworth’s Northern Group, which operates 760 stores selling apparel in the US and Canada, is now its most profitable division, reporting a 1996 profit of $42m (26m).

The closure announcement, ten days ago, came as little surprise to many observers, but for the staff and lovers of Americana it was like a death in the family.

Symbolically the New York Metropolitan store, the spiritual home of the company – New York accounts for 25 per cent of its remaining stores – will be the first to close, before the end of 1997.

Ironically, the announcement came five days after a Euromonitor report into US retailing found that discount, general merchandise and department stores had increased their share of sales from 15.1 per cent in 1992 to 16.6 per cent last year. But FW Woolworth has not been one of the winners in the US retail scene. Unlike fellow discounters, such as Wal-mart and Target, it has not been able to take advantage of growth in the market because it was too set in another period: “Somewhere between the Twenties and Sixties”, as one source put it.

But sadness over the closures is more than just nostalgia. “It is particularly sad for low income areas where there are no other general stores,” says Leonard Berry, director of the centre for retail studies at Texas A&M University, “those neighbourhoods need Woolworth.”

But whatever the need for, and the social role played by, the “five & dime” general stores originally created by Frank Woolworth to sell nothing for more than a nickle, they are dying. The group may have taken the final decision to kill off the format, but ultimately FW Woolworth is the victim of growing competition from rival US discounters and a failure to adjust to a changing market.

“It was inevitable,” argues Berry, “it has lived a long life but has struggled to compete with the other discounters like Wal-mart and some of the other big retailers. It’s remarkable that it lived so long.

“The local press has been feeding on the nostalgia angle – the end of an era – but the fact is the Woolworth stores look tired and old and have not been competitive for some time. This was the five & dime where you could buy inexpensive merchandise in one place – but it has been superseded by the big general merchandise stores that sell everything from electronics to food and clothes and more cheaply.”

One hundred of the Woolworth stores will be converted into Foot Locker, Champs Sports and other athletics or speciality outlets. The group expects the closures to cost it $223m (139m) before the end of the year.

“We made the very difficult decision to close our domestic FW

Woolworth general merchandise operations to help assure the continuing profitable growth of the Woolworth Corporation and to better serve all our constituencies,” says Corporation chairman and chief executive officer Roger Farah. “This company has invested significant resources in trying to revitalise the FW Woolworth chain, including time, money and management’s attention.

“However, despite our best efforts and the hard work of the FW Woolworth team, the business continued to lose money and it became clear that FW Woolworth would be unable in the foreseeable future to return to profitability as well as meet our minimum performance standards,” Farah adds.

Among the measures taken to revitalise the Woolworth store brand was the creation of some redesigned prototype stores; eliminating its pet departments; beefing up its cosmetics sales; closing those stores which were suffering the greatest losses and entering US shopping malls in separate guises including Richman Brothers, Anderson-Little and Kinney Shoes.

But such moves have not been able to prevent mounting losses – in the quarter to the end of April 1997 the stores suffered an operating loss of $24m (14.8m) on sales of $224m (138m). In 1996 the division generated sales of $1bn (617m) but reported losses of $37m (22.8m).

“It would have required massive investment from the Woolworth Corporation to turn the stores around,” says Berry. “And that is unlikely to have been the best use of its money. It has more successful outlets and has decided to invest in those.”

Frank Woolworth was such a control freak that he built a cage in the back of his first store to watch his employees and act as cashier. Each time they made a sale they had to run back to the cage.

By the time he died in 1919, the company had over 1,081 stores and sales of $119m. But even his close eye to detail, and a paranoid fear of being cheated, would not have changed the position of his beloved store group.

The slaughter of this American family institution should be filed under “inevitable”.

The Wonder of Woolies 1879-1997

1879 – Frank Winfield Woolworth opens his first store, the Great Five Cent Store in Utica, New York state.

1886 – Woolworth moves his headquarters to New York city, buys a string of “five & dime” stores across the US and expands into Canada, England and France.

1913 – Woolworth pays $13.5m in cash to construct the Woolworth Building, then the world’s tallest at 792ft, in New York.

1919 – The founder dies. The group has sales of $119m and 1,081 stores.

1983 – The Woolworth Corporation sells its UK interests to a management buyout for 310m – it later becomes the Kingfisher Group

1997 – The US management decides to axe the chain, closing 300 US stores, converting 100 to sports formats and cutting over 9,000 jobs.

Latest from Marketing Week

NOT REGISTERED? IT'S FREE, QUICK AND EASY!

Access Marketing Week’s wealth of insight, analysis and opinion that will help you do your job better.

Register and receive the best content from the only UK title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work. The more we know about our visitors, the better and more relevant content we can provide for them. And, yes, knowing our audience better helps us find commercial partners too. Don't worry, we won't share your information with other parties, unless you give us permission to do so.

Register now

THE BEST CONTENT

Our award winning editorial team (PPA Digital Brand of the Year) ask the big questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.

THE BIGGEST ISSUES

From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we are your guide.

PERSONAL AND PROFESSIONAL DEVELOPMENT

Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Having problems?

Contact us on +44 (0)20 7292 3711 or email subscriptions@marketingweek.com

If you are looking for our Jobs site, please click here