Price-cutting threatens high street rivals

James Thompson
Thursday 11 December 2008 01:00

The launch of Woolworths’ store closing sale today will have huge ramifications for the retail sector and the government, as unemployment spirals.

Deloitte, the administrator, is ramping up its ongoing stock clearance sale after failing to find a buyer for the 800-store retailer, despite a host of well-known names, including Theo Paphitis of the BBC’s Dragons’ Den series, throwing their hat into the ring. Staff at its stores and head office, as well as its Entertainment UK (EUK) wholesale entertainment division, were informed of potential redundancies at 4.30pm yesterday.

Bryan Roberts, the global research director at Planet Retail, said: “It is a real shame because it was once one of the most successful and popular retailers. Despite its many failings, it was and has been one of the most long-standing and iconic retail brands.”

The ramifications of Woolworths closing down will spread far beyond the retailer’s pick ‘n’ mix counter.

Jobs losses for tens of thousands of Woolies staff will also set alarm bells ringing in the corridors of Whitehall, as it will wreak havoc with already soaring unemployment figures. It is understood that some staff, many of whom are paid little more than the minimum wage, will receive redundancy cheques of just £385 for each year of service.

The collapse of Woolworths will also send shockwaves through the boardrooms of retailers, including HMV, Game, Zavvi and Wilkinson, as huge discounting by Woolworths will wreak havoc with their festive trading period. Many retailers make most of their profit in the final quarter of the year.

Suppliers of iconic toys such as Bob the Builder, Bratz and Transformers are chasing Woolworths for millions of pounds after the retailer went into administration last week.

EUK, which previously supplied the likes of Asda, Morrisons and Zavvi, formerly Virgin Megastores, is also likely to fold within days, leaving some of the world’s biggest film, software and music studios out of pocket. It is reported to owe Microsoft about £26m, Nintendo around £21m and Paramount an estimated £32m. If EUK is liquidated, it is unclear what will happen to the reported £50m to £100m that Zavvi owes to the wholesale entertainment business.

Yesterday, a retail tycoon - who ran Woolworths for nearly 20 years - became the latest big name to try and rescue the retailer. Sir Geoff Mulcahy, the current chairman of the British Retail Consortium, made an eleventh-hour offer to assist running the business, in an effort to safeguard some of the 25,000 retail jobs and achieve a better price for the business – but it came too late.

Last week, Mr Paphitis, the star of Dragons’ Den and owner of the Ryman stationery chain, walked away from a potential bid for the retail chain. David Buchler, the former vice-chairman of Tottenham Hotspur football club, also expressed an interest, but a firm is thought to have not materialised.

The crumb of hope for Woolies staff is that many will get jobs will rival retailers, such as Tesco, Sainsbury’s and Iceland, who want to buying large packages of Woolworths’ stores. While CBRE, the property specialist, is understood to have received firm expressions of interest for more than 300 stores, the sad reality is that more than 400 stores are likely to close. Empty, boarded-up former Woolworths stores are likely to be a feature of many high streets by early next year.

However, a source said that it might take “weeks” to shift the remaining £260m worth of retail stock still left.

Neville Kahn, a reorganisation services partner at Deloitte, said: “While we are still seeking bids from interested parties, Christmas is clearly the busiest time of the year for retailers and it is prudent to do all we can to sell existing stock. By moving to a store closing sale and further discounting the stock, we are maximising the sales potential that this period offers.”

While some parties will be interested in buying the Woolworths brand, possibly for an online site, it is likely to disappear from the high street. Mr Roberts said: “The whole reason why Woolworths is in this sorry situation was that its brand was one of the weakest on the high street. It would take someone very brave or foolish to attempt to resuscitate that brand.”

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