Case Study On Strategic Analysis Management Essay

This will be done through analysing the variety stores industry in which Woolworth operates, the companys past, present and future growth strategies and its current performance. Using recognised strategic tools, the various options available to the company will be recommended and evaluated.

The Methodology that will be used to compile this dissertation will mainly be in the form of secondary research. This is largely because the nature of the project requires the co-operation of managers at very strategic level of the company. The Managers understand and have sufficient information on the strategic direction of the organisation. The writer was unable to arrange interviews with the management in the company, as information they have cannot be made public for confidential reasons. As a result it is deemed that the information gathering from other sources within the company would not be as reliable as desired for this topic. Informal primary research interviews will be arranged to gain general information on Woolworth’s PLC’s policies and operations with members of Woolworth’s store staff.

Secondary information will also be used to compile this dissertation due to the availability of reliable and valid information on Woolworth’s PLC and the variety retail industry. Secondary research will be conducted through examination of annual reports and accounts of the company and it’s main competitors. To evaluate these, sources such as Mintel Marketing Intelligence Reports and Marketing and Business trade journals will be used. Published academic books on Strategic Management will also be used to assist with the theoretical elements of this dissertation.

Woolworth’s is generally described as a variety store. These are organisations that concentrate their efforts on the retailing of a range of products in the lower and more popular price ranges. They provide a walk in, shop and carry facility as the major route of purchasing (home delivery and pre ordering being rare), with open display and self-service merchandising. They are unlikely to be departmentalised. Other related categories include department stores, discounters and specialist shops (also known as category killers) (Oxford English Dictionary 2001).

Woolworth’s was first established by Frank Winfield Woolworth in 1879 with the concept of selling products costing no more than 5 cents. This proved a popular idea with the consumers and the turnover continued to grow. The concept was of no frills shopping, with a range of low priced, non-perishable items. When F.W. Woolworth died in 1919, he had built an empire of 1,081 stores with sales in excess of $118 million per year (Faulkner et al 2003). The company continued to grow and developed internal competencies in areas such as marketing, finance and estates management (Faulkner et al 2003). Faulkner et al also comment that this period of Woolworth’s history was characterised by the focus of its strategy: it was able to deepen its existing competencies and incrementally expand both its competency base and it knowledge of different market environments (such as suburban retailing) (Faulkner et al pp. 279 2003).

However, this was to prove insufficient when discounters and category killers became more prevalent in the market. Wal-Mart had begun trading in general merchandise at low prices and specialist retailers, such a Toys- R- Us provided a destination shopping location for those consumers seeking a particular product, a wider range of products or specialist knowledge about the products. Woolworth’s began a decline in sales in real terms due to its lack of insight of how to capitalise on the prevalent retail preferences. They failed to take the move to expand their business either into a wider focus or a narrower one, strategies which would have given them a platform from which to take on their competitors.

It wasn’t until the late 1980s that Woolworth’s changed their strategy in the United States with their diversification into specialist areas, such as Kids Mart and Little Folks, as well as entering the discount retail business with the Woolco concept. However, they lacked the competencies and capabilities to make up for the time they had lost which had allowed their competitors to establish a strong market lead and in 1995, Kids Mart and Little Folks both closed down. This was on top of the closure of 400 stores in the USA and the sale of 122 Canadian Woolco stores to Wal-Mart (Faulkner et al 2003). One of the specialist areas they had entered into, footwear, did prove to be a success and led Woolworth’s in the USA to open over 7, 000 athletic footwear stores covering a range of gender and age segments by 1998. The company decided at this stage to change its operating name in the USA to the Venator Group (Faulkner et al 2003) and to reposition itself as a specialist sports footwear retailer.

The groups business in the UK moved in a different direction and kept the original company name. At present, in the UK, Woolworth currently owns around 900 stores selling toys, confectionary, house wares, seasonal products and electronic entertainment. The UK business has also moved into specialist areas with the introduction of MVC home entertainment and electronics which currently has 85 shops, E.UK, which is the largest distributor of home entertainment products in the UK, and the music and video publishing arm VCI (Cornell date unknown). Having become a public company in 1931, Woolworth’s was briefly taken over in 1982 by Kingfisher, but returned to public ownership again in mid-2001.

Woolworth’s stated aim is to be at the heart of the community and the best loved retailer for kids, home and family leisure (

As will be seen Woolworth’s performance has been variable over recent years and in January 2005, they received a takeover bid from the private equity group, Apax. Although the Woolworth’s board rejected that offer, a higher one was received four weeks later and is currently under consideration. This means that the future for Woolworth’s is an uncertain one, with the possibility of a substantial cash injection, but diminished control for the current management team. Should the Apax offer be rejected again, Woolworth’s is likely to receive offers from its major competitors. PORTERS FIVE FORCE ANALYSIS.

Threat of new entrants

Despite the high number of retailers dealing with general merchandise, two areas are seen as being particularly relevant.

Currently, there are only two catalogue based shopping concepts in the UK, Argos and Next. This market remains highly under-represented considering the success particularly of Argos and it could be expected that the concept will be taken up by more companies in future. These businesses offer the full range of house wares, electrical goods, toys and gifts as available from Woolworth, and have a distinct competitive advantage in their practice of minimal stock holdings in store allowing extra selling space to be released. They may face difficulties in finding the number and size of locations they would need to become a major player in this market, but this could be overcome through the acquisition of an existing retailer.

Further new entrants may be seen as foreign companies try to increase their market share. These have already been seen in two main forms. Firstly the specialist retailers who started from nothing in the UK and have achieved good organic growth. Examples include Toys-R-Us, Ikea, Gap, H&M, Beneton and Poundstretcher. The second group are those who gain a foothold in the UK market through acquisition. These include Wal-Mart, Brantano and Claires Stores. There is no reason to expect the level of foreign retail interest in the UK to decrease.

Bargaining power of suppliers

The bargaining power of suppliers has been much diminished with the development of e-commerce. Because of the vast increase in access to information between potential suppliers and buyers, the suppliers pricing strategy may be the only way to secure business. This is likely to increase as more use is made of the Internet. One recent development has been the practice of reverse auctions where a retailer specifies what they want and competing suppliers out bid each other, via a web site, by lowering the price rather than by raising it as in the traditional auction (

Once suppliers have been agreed, the large size of this retail sector also ensures buyers can act from a strong negotiating base, as they have significant control over the future health of dedicated suppliers. Recently there has been publicity around the practice of large retailers setting what are seen as unfair terms with suppliers and of insisting on price reductions even though the supplier then operates at a loss (Telegraph 2005). However, it is not expected that any legislation will bring about changes in this situation in the foreseeable future.

On the negative side, specialist suppliers such as those supplying mobile phones and computer games, have an increasing amount of power due to the demand for their products. A retailer would need to ensure they have sufficient quantities of a product such as the latest Playstation, for the Christmas market, but are frequently left in the hands of suppliers who can give preferential service to other customers.

Threat of substitutes

Product substitutions can be used in two different ways. Firstly, as is the strategy of many of the main supermarkets, own brand labels are seen as acceptable substitutions for everyday grocery items. The cost of substitution is low to the customer i.e. they feel that there is little risk because of the loyalty they have to the store. The other type is through introducing higher priced, luxury type items. This strategy can be seen in the Marks and Spencer food sector where they market the products as being superior to other brands.For the variety retailers, the concept of substitution does not seem to have been fully exploited and it is a possible strategy for securing market share in the future.

Bargaining power of customers

The high level of competition amongst retailers has led to a position of power for the consumer. Having moved from seasonally driven sales events to permanent deals, the aggressiveness of these approaches has also increased. Customers now expect to be able to get three for two offers throughout the year. This puts the retailer at a disadvantage, as they will lose the potential benefits of targeting marketing promotions and means they are continually forced to take the path of competitive pricing. This can lead companies to over rely on the profits made from a limited range of products whereas the rest of the ranges operate at unsustainably low profit margins as loss leaders.

Competitive rivalry within the industry

The variety stores sector is highly competitive and there is no reason why this should not continue to be the case. It is suggested by retail analysts, Peters, Elworthy and Moore, that the variety store business in the UK has become saturated and that the larger stores are likely to take over or merge with the independents (cited in Potts 1996). Competition from superstores and supermarkets is expected to increase as they add to their ranges of non-food items in a bid to gain a higher share of the overall consumer market (Potts 1996).

It is also expected that the differentiation between department stores, variety stores, home shopping and supermarkets will become less sharp as retailers look to alternate channels and increasing product ranges to maximise their turnover (Potts 1996). This will make it difficult for new entrants to enter the market unless they benefit from a unique selling point such as discounting, as has been seen with companies such as Wilkinson’s.



Ecological/environmental issues- corporate social responsibility (csr)- The main belief around csr thinking is that the practice of businesses within the capitalist economy to concentrate their efforts on providing wealth for its shareholders, is unacceptable and that companies should take the responsibility of considering the well being of society as a whole (The Economist, January 22nd 2005). It has been countered by Lynch that failure to make a specific statement on ethical issues, does not mean that a company is not fundamentally ethical in the way that it does its business (Lynch 2003).

Retailers generally are coming under increasing pressure to ensure they cannot be charged with poor practices with regard to the developing world or the environment. The activities of and publicity around the anti-globalisation movement, may dissuade organisations from expanding their markets abroad, although many see these as a small minority and it is questionable as to whether their activities would cause a company to alter their strategy. It is more likely that they will take the issues into account in terms of having a robust csr policy and when reporting to the media. Woolworth’s made the following statement on csr in their latest financial statement: “During 2003/4, through the CSR Committee, Woolworth’s Group has continued to work to understand the impacts, both positive and negative, of our business.

A proper understanding of the risks we must manage and the opportunities we have to be a catalyst for improvement is a fundamental part of how we do business ( Woolworth has specific policies on the areas of timber and chemical usage, a strict code of ethical trading and has set up its own charity (Woolworth Kids First) to provide the opportunity for their employees to help children on a local basis ( Whilst Woolworth’s are outwardly taking their csr seriously, it is an area that has come from nowhere to heavily impact organisations in the past and Woolworth would do well to bear in mind the impacts on Nestle of the baby milk episode and on Marks and Spencer of the sweat shop issues.

 Legislation- a new White Paper has been announced that will give retailers the ability to offer legal advice through their own law companies. Dubbed Tesco Law, it provides a further service to encourage the one stop shop approach of the large supermarket chains (BBC D). Supermarket chains, which are one of Woolworth’s main sources of competition, have had a strategy of offering a one-stop shop opportunity to their customers with the introduction of such facilities as pharmacies, banking facilities and insurance. It is not yet known whether Woolworth’s is planning to introduce such offerings in its store.

Government policies- in the recent budget, Gordon Brown announced a doubling of the threshold for stamp duty on house purchases to £120,000. This was done to assist particularly first time buyers. Encouraging the housing market will have a beneficial effect on Woolworth’s house wares, furnishings and DIY ranges, but this will obviously extend to their competitors as well.

Government term and change- whilst a General Election is due in the UK, the writer believes that there would be no significant impact, either positive or negative, were the political party currently in power were to remain or change.


Home economy situation- the current economic situation in the UK can be seen as a positive factor for Woolworth’s with low interest rates (2.7%) and high property values leading to record levels of borrowing. However, there are concerns over the level of borrowing as debt levels for have reached more than £1 trillion (BBC E). It should also be noted that low interest rates would dissuade people who are living off investments from spending, although these tend to be those in retirement who are not considered to be Woolworth’s target consumer. They have identified that their typical customers are mothers with dependent children living at home(

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Home economy trends. The Government states that Council tax will rise by an average of 4.1% in the next financial year, the lowest increase in more than ten years (BBC B). In the housing market, figures for changes in house prices vary by source with the Halifax quoting a 0.5% rise and the Nationwide a 0.5% fall (BBC A 2005). There is currently no solid evidence of a crash in the housing market. Should this occur, the impact on the whole retail industry would be immense.

Overseas economies and trends- oil prices had risen to a high of $56.15 per barrel in mid March (BBC F). Although they are currently falling, they remain 25% higher for the year (BBC F). Long term, the situation is likely to worsen as demand for oil increases from growing economies such as China, where the economy is growing at 9% and a 10% increase in oil use is predicted for 2005 (BBC F 2005). High oil prices will affect both production and distribution costs for all retailers and will have to be passed onto the consumer through increased prices if alternative savings cannot be made in the value chain.

Market and trade cycles- despite good economic factors such as low interest rates, the UK retail economy seems to be slowing down. In March Morrison, Boots and Jessops put out profit warnings and it was reported that data suggests generally poor retail sales and weak spending for the period since Christmas (Verdin 2005). The figures point to a growth in consumer spending of only 0.2% for the last quarter of 2004 the weakest figure for almost two years (Duncan 2005).No specific cause for this downturn has been identified; although the writer would suggest that the publicity around levels of personal debt and the worsening pension crisis may have some influence.


Consumer attitudes and opinions- Mintel’s annual lifestyle report has found that consumers are shunning the larger supermarkets and chain stores which they find impersonal, and are much more likely to frequent local, independent shops (cited in BBC C). The implications of this for Woolworth could be positive or negative. To many people, they may be classed as a multi-site retailer and therefore avoided by the consumer. However, the history of the company, its generally high street locations and the nature of the products it sells may lead some to choose it as a shopping venue over large supermarkets. In this area, the history and reputation of Woolworth’s can only be beneficial.

Fashion and role models- the value of celebrity endorsement is well understood by the retail industry and icons such as Jamie Oliver, Delia Smith and David Beckham have all become associated with particular brands. Woolworth identified this pattern and adopted the puppet characters, Woolly and Worth, for their 2004 Christmas campaign. Its success has encouraged them to continue the use of these characters for future advertising campaigns (

Technology- the rate of increase in use of cutting edge technology based items has given retailers a highly lucrative new product range. For example, mobile phone technology only became widely available in the early 1980s, but today, approximately one in six of the world’s population owns one and in most of the developed countries, market penetration exceeds 70% (The Economist 2005). As well as the phones themselves, the associated hardware and software are highly popular and unexpected markets have developed, for example, ring tones. There are no indications that these products will do anything other than maintain their growth and the continual developments in technology help to keep the market buoyant.

Consumer buying mechanisms/technology- the growth of e-commerce has provided two new strategic directions for retailers. Firstly, there is the opportunity of selling the technology itself- mobile phones, personal computers, software, downloads, games- and secondly, it provides a further channel through which to sell goods. All the major retailers have web sites on which customers can research products, compare prices, order and pay for goods and, as such, there is reasonable competition to encourage consumers to visit particular web sites. An extra dimension is the number of companies who sell only through the Internet. This provides them with a competitive advantage of having lower overheads as premises and shop floor staff are not required.

A good example of this is the book retailer who have diversified into clothing, apparel, DVDs and compact discs following their success with books. Further channels have yet to be fully utilised including ordering goods through mobile phone technology and digital television shopping channels. Whilst building their e-commerce business, Woolworth’s need to ensure it is based on a stable and secure foundation. Although not alone in the experience, they had to close their site for two months in 2000, when a customer reported that they could view other people’s credit card details on the site (Azeez 2002).

Maturity of technology- Radio Frequency Identity Tagging (RFID) is seen as the way forward by many retailers who are undertaking trials of the technology. The most well known is probably Tescos who have been testing it on their high relative value, easily portable items such as razors. Woolworth had been trialing systems but has announced this year that there is no longer funding for the project ( They are allowing the technology to reach maturity and should then be able to capitalise on the research done by others. There are some risks with this strategy as it gives the competitors the opportunity to realise the benefits of such technology at an earlier stage. However, it also protects Woolworth’s from the high level of risk associated with this technology and dealing with issues raised by the Data Protection Act.

The competitors of Woolworth are deemed as being:
Discounters– those stores which offer stock at particularly low prices and have this as a unique selling point. These would include: Wilkinson’s, Asda-WalMart and Poundstretcher
Supermarkets– stores that historically sold predominantly food items, but have now generally expanded their range to include substantial non-food categories. Examples are: Tesco, Sainsbury, Asda-WalMart and Waitrose
Department stores– a store which sells a range of items, usually non-food, that divides its goods into distinct areas of the store. In the UK this category includes: M&S, Debenhams, House of Fraser, British Home Stores (BHS), and John Lewis
Catalogue stores– the retailer has a large proportion of the store space dedicated to storage rather than selling space. Few, if any goods are on display and customers select from a catalogue, usually without viewing the product first. Argos and Next are the most well known in the UK.
Specialist stores– those who concentrate on selling a particular product, which corresponds to part of the Woolworth range. For example, Mothercare and the Early Learning Centre for children’s clothes, B&Q, Homebase and Focus DIY for DIY products.

Competition is high for all segments of the retail industry which has lead to a blurring of the differences between the categories. Many companies are diversifying into new sectors or aiming for higher market penetration in their existing products. A good example are the supermarkets which have had many years of fierce competition with the main three, Tesco, Sainsbury and Asda, regularly changing places in the retailer league. Their strategy involves adopting a hybrid approach. Cost leadership to some degree by ensuring they maintained competitive pricing for generic products and then offering their own brands at a significantly lower price and differentiation in terms of the range of products they offer by branching out into greater ranges of non-food items. New entrants to the market had to have a unique selling point to appeal to the consumer and found it in terms of outperforming the established market in cost leadership. Aldi, Netto and Lidl have achieved some success in this, providing generally unfamiliar brand named, everyday products at a significantly lower price than the main supermarkets.

The supermarkets also attempted to increase their market share through increasing their ranges of products and increasing the size of their stores to include superstores and hypermarkets. Other tactics include offering an appearance of being more exclusive (such as Waitrose and Marks and Spencer), positioning as a leader in corporate social responsibility (as in the Co-Operative stores and their Fair-trade products) and seeking new selling opportunities (for example, Marks and Spencer’s food outlets in service stations). The amalgamation of Asda and WalMart and Morrisons and Safeway showed that some of these strategies left companies with no clear customer focus, trying to be all things to all people, and, with decreasing sales and market share, they became attractive propositions to companies wishing to achieve a foothold in a new geographical location (the south of England in the case of Morrisons and the whole of the UK in the case of WalMart).

The biggest threat to Woolworth’s from these stores has been through product diversification. Initially seeking to offer a one stop shop experience, with selling general merchandise, they then took on specialist stores such as Lloyd’s pharmacies, and non-retailers with the offerings of financial services.

The specialist stores have had to recognise that as well as competing between themselves where products overlap, they are now also having to take on the supermarkets. Music retailers, such as HMV and Virgin, are experiencing pressure from supermarkets, who area able to take them on in terms of cost leadership due to economies of scale and value chain efficiencies, leaving the music stores with the only option of maximising their niche qualities. However, the increasing popularity of e-commerce, both in terms of new retailers and innovative product formats (such as downloads), has put this strategy at risk as their niche status is coming under attack. The implications for Woolworth’s high street stores are that they are having to rely on appealing to customers who are not seeking a specific item when they enter a store, as they cannot compete on grounds of price or specialism. Their appeal is to the impulse purchaser or those who are buying for someone else and are unsure of what they want. This merges well with the Woolworth strategy of concentrating on Kids and Celebrations. However, if they are positioning themselves as a one stop shop provider for celebration events, they are still in competition with the supermarkets who are able to provide the same items and the opportunity to purchase them whilst doing the regular grocery shopping.

In areas where Woolworth has traditionally been seen as a key provider, children’s clothes, again, the supermarkets are offering a cost leader alternative with a strong fashion selling point, by employing well-known designers to support their products (such as George at Asda). Tesco recently showed their power by offering Levis jeans at a price point lower than the manufacturer. Coupled with this is the strategy of other companies to move into this line as a new product or to increase their market share. Key players are Mothercare and The Early Learning Centre. Seen as specialists for the child market, their threat to Woolworth is significant as is that of clothing retailers identifying the market for children’s clothes and exploiting it using their strength in reputation to appeal to the consumer (Gap Kids for example).

Whilst all these forms of retail outlet vie for the consumers business, there is an inherent risk for all of them in terms of being able to convert their sales into profit. With competition being so fierce and coming for several different directions, most retailers have to ensure that whilst they are not necessarily the cheapest, they are competitive. The exceptions to this are those that promote themselves as exclusive, such as Waitrose. All these retailers are seeking to reduce their costs through driving savings with the value chain. This has wide reaching implications. As pressure increases to produce the goods at a lower cost, the source of production moves to countries with lower wages and poorer working conditions. As well as affecting the UK economy through increased unemployment, there have been cases where the apparent violation of human rights has produced poor publicity for the retailer. An example of this is the situation Marks and Spencer encountered in the late 1990s.

On the one hand they were being accused of being too expensive, so they moved production of their clothes to developing countries. This led to an outcry in the media when companies in the UK who had been supplying them for years, could no longer operate and had to close down.

Another strategy to reduce production costs is to use cheaper raw materials, but again, the negative aspects of this receive attention, with the current example being the questions raised over the nutritional value of cheap food products.

Within the organisations themselves, streamlining head office personnel in terms of numbers and outsourcing support functions such as recruitment, have shown to be effective in the short term, but the long-term effects of cutting costs in areas such as research and development and training has yet to be seen.



Many of Woolworth’s strengths come from its long history. They have a recognised internal competence in supply chain management and are able to use this both to reduce their costs and to enter into agreements with organisations that would traditionally be classed as their competitors, such as Tesco. They are using their expertise to provide additional turnover. Their contracts with other companies that utilise their strengths also allow them to minimise the risks to themselves. Having been long established, Woolworth has a good reputation in the UK and is a recognised name on the high street. They have a strong presence in toys, house wares, confectionary and seasonal products markets and due to their size can boast a dominant position over the majority of their suppliers.

The perception of consumers is of a high level of corporate social responsibility, having not been subjected to significant poor publicity in any areas. The general economic conditions in the UK are promising although the recently reported slow down in consumer spending must be regarded as a risk. The locations and number of stores operated by Woolworth’s can be seen as a further strength, especially as consumer preference moves away from out of town shopping. They have made a good move in the adoption of advertising icons, which are considered to be a key element of their marketing campaign. Recent improvements in their stock management systems involving the introduction of an integrated replenishment system and the Kingstore till systems, gives them the ability to manage their stock levels more efficiently, thereby reducing both costs and instances of stock outages.

They have undergone a recent review of how they can improve their operational efficiency and this shows a proactive strategy to take on their competition. They have a high level of understanding of customer base which they have developed through their long history in the retail market. This enables them to predict changes in consumer requirements and gives them the potential to maintain a competitive edge. Their decision to increase their use of their own brand products gives them the opportunity to heighten their market penetration in these areas, whilst their expansion of electronic entertainment offerings shows a desire to widen their range within a specific sector. These strategies seem to be successful at present. They are able and willing to adopt different strategies for different product ranges, meaning that they can take on the competition in a variety of ways rather than depending on a single approach.

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Woolworth’s practice of discounting and offering deals at high levels provides customers with power which can force the company to do things it would not normally have to consider, such as extending the number and length of three of two offers. Although, driving sales, this can have a significant impact on their profitability. Failure to keep up to speed with competitors in new technology such as RFID could prove to be costly as they will be unable to realise the financial benefits at the early stage, reducing their ability to compete in value chain reductions. Poor decision making over the critical trading time of Christmas led to disappointing sales and potentially, a drop in confidence of consumers and investors. Whilst it could be considered that they would have learnt for this experience, it suggests poor decision making at management level which could possible be repeated in other areas. The appearance of their stores requires attention, which it is receiving, but arguably, not at a fast enough rate. Customer perception of their offering is of a low value product which although synonymous with value, could be seen as a negative factor if they continue with their positioning strategy with regard to kids and celebrations.


There are several opportunities available to Woolworth’s. Further development of the electronic entertainment offerings would seem to be a significant one of these. The sector continues to grow and Woolworth have established themselves at an early stage. There is potential in foreign markets for Woolworth’s own brands such as Ladybird and Chad Valley and in the domestic market, the strength of the housing market is leading to a high level of purchases in the key areas of house wares, furnishings and DIY. The current consumer trend is towards a preference for high street retail outlets as opposed to out of town superstores and Woolworth are well positioned to take advantage of this. Extending channels for consumer purchase to make use of the developments in technology such as mobile phones and digital shopping channels must be considered as a key opportunity for the future. The current Apax takeover bid may provide essential funding for growth for Woolworth enabling them to launch a significant attack on their competitors.


However, despite the opportunities available, Woolworth’s retail environment is not without its risks. High levels of competition from within the variety retail sector and from other sectors such as discounters, category killers and catalogue-based retailers continue to make the market a difficult one. Aggressive competition from supermarkets extending their non-food ranges and moving into the smaller scale, convenience shops is a further cause for concern as is the recent trend of a decrease in retail sales. Coupled with the increase in oil prices and demand for oil, Woolworth may find it difficult to maintain a competitive pricing strategy and the market saturation of the high street retail market means that they cannot afford to become uncompetitively priced. The increase of piracy will affect their electronic entertainment sales unless it can be combated and they should remain aware of security issues over e-commerce. Whilst the takeover bid from Apax as been quoted as an opportunity, it is also a threat in terms of the potential loss of talent. During times of uncertainty, key employees may decide to seek alternative employment taking their intellectual capital with them.

Whilst on initial inspection, Woolworth would seem to have a larger number of strengths than weaknesses, it should be noted that it is the nature of these areas that is most important. Qualities such as history and reputation would not compensate for poor product placement decisions at management level.

Woolworth’s underwent a radical review of its business in 2002 and determined that there were four main vehicles to growing profits. By simplifying the business through reconsidering the expansion of the Woolworth General Store and BigW concepts, they have been in a position to realign and merge the management structures which were proving to be a barrier to adding to the value chain and were also expensive in themselves ( Woolworth identified that whilst the commercial teams for these concepts were concerned with sourcing new ranges, it had resulted in poor range construction, unsatisfactory availability levels and a failure to maximise the buying leverage of the Mainchain (

Woolworth’s have strengthen their infrastructure through the adoption of a new Integrated Planning and Replenishment System which allows accurate management of stock levels to ensure neither too much or too little stock is held at the main warehouses or the stores ( Coupled with this, they have introduced the Kingstore till system with benefits to both stock holding accuracy and speed of service for customers ( Their sourcing and merchandising of goods has been improved through centralisation of buying to maximise leverage, a 10% reduction in the number of suppliers to reduce costs, better range architectures in Toys, Home and Clothing, increased use of own brand products such as Ladybird, Chad Valley and Colourplay, (and) changes in the clothing supply chain to reduce lead times, lower stockholding and maximise markdown, establishment of the groups own buying office based in Hong Kong (

They also recognised the importance of delivering a clearly understood, differentiated retail offer to their customers which, depends upon having a clear understanding of our customer base (

Despite these improvements in the value chain, Woolworth have not been able to drive their sales figures, although they do retain market share. CURRENT MARKET POSITION.
Woolworth financial result for 2004 showed a sales increase of 4.5% overall, although like-for-like sale for Woolworth’s main chain were down by 1.3% ( This was converted into £73.1 million profit, an increase of 4.7% on the previous year ( and allowed them to provide 3.6 pence per share basic earnings, up 2.9% ( During the year, they had made substantial investment in terms of store refurbishment and the implementation of the Kingstore till system, costing a total of £72 million. Whilst limiting new store openings to two, forty-eight stores were refurbished (

2004 had seen the creation of the joint venture 2entertain with the BBC. However, the second half of the year was disappointing, with Christmas not producing the results hoped for. Woolworth decided to allocate extra floor space to toys and gifts as early as October in the hope that they would take advantage of early Christmas sales. This was unsuccessful and led to a loss of sale of other products that had been removed to make the extra floor space ( Woolworth’s also had extremely strong competition for the toys and gifts markets with Argos maintaining their market leading position for another year (

With the retail market reaching saturation point and continued negative media coverage of possible house price crashes, pension shortfalls and personal debt, the lower amount of disposable income people are willing to spend is being spread that much more thinly. However, some retailers have been able to buck this trend and Woolworth’s would benefit from benchmarking themselves against the high performers, particularly those they are in direct competition with, such as Argos.

Woolworth’s entry into the entertainment business became more focused following the demerger with Kingfishers in 1991 and they now operate E.UK, 2 Entertain, MVC and Streets Online, which the writer believes are a key aspect to the company future performance. E.UK was established as a brand in the mid 1960s as Record Merchandisers Limited, and by 1986, with Woolworth as its largest customer, it was acquired by Kingfisher.Video Collection International (VCI), having been one of the first video retailers, was bought by Kingfishers in 1998. MVC was founded as a joint venture between Kingfisher and former directors of Our Price in 1991. Kingfisher took over total control in 1996 (

When Kingfisher and Woolworth’s demerged, Kingfisher plc transferred its interests in the underlying general merchandise businesses to Woolworth’s Group plc in satisfaction of a dividend in specie declared on Kingfishers plc’s ordinary shares (

E.UK is the largest wholesale distributor of home entertainment products in Britain. 2 Entertain operates as an audio-visual publishing group and MVC is a specialist high street retailer of entertainment products with 85 stores ( Streets Online, one of the UK’s leading specialist online entertainment retailers, was acquired in December 2000 to complement the MVC high street store chain (

Entertainment UK (E.UK) showed a strong performance in 2004 raising sales by 10% to £1.2 million ( The concept is based on entertainment and books distribution and has gained business in its sales to third parties. Having acquired contracts with WH Smith and Tescos for book distribution, third party sales now account for 38.4% of the business ( The strategy for the future would seem to be based around building the third party and e-commerce sides of the business whilst continuing to make efficiency savings in the supply chain which are essential due to the pressure on gross margin.

As broadband access has become more widespread across the UK, the music and video download market has become a major channel in the entertainment market. Major players include MSN, iTunes, Napster, Tiscali and Wanadoo whilst, as a result of an aggressive marketing campaign, Coca-Cola’s site is one of the most successful download services in Europe (Author unknown June 2004). However, Woolworths have a different offering to these competitors being the only major site to sell current chart music and to do so through a Windows Media format rather than a thrid party website (Author unknown June 2004). They have also negotiated licensing deals with the five dominant record labels- EMI, Sony Music, Universal Music,BMG and Warner Music- as well as several of the independent labels (Langford 2004). It has been suggested that Apax’s bid is dependent on the sale of 2Entertain valued at around £200 million (Telegraph 2005 B).

MVCs strategy is to distinguish itself from other specialist high street entertainment retailers by offering, through multi-channels, depth of product range, including an extensive back catalogue at competitive prices ( They see their customer base as being the frequent high-spending buyer of entertainment products ( However, in the 2004 annual report, it was revealed that the company was unwilling to commit to the high level of investment required for the repositioning of MVC which had showed a 4.8% fall in like for like sales over the previous year and that after closing fourteen stores, the remaining sixty seven would be divested (

One of Woolworths key range is toys and games. Despite publicisng the aim to be a market leader in the UK for toy sales, Argos lead with 40% of the market. Woolworths maintain second place, with Toys ‘R’ Us third (

The toys and games market in the UK has seen a shift in channels with a decline in mail order due to the increased popularity of on line shopping and the increased ranges held by supermarkets. This has severely affected department stores with both Debenhams and WH Smith reducing their ranges of toys and games in a re evaluation of strategy. Category killers are becoming more dominant as well with Toys ‘R’ Us, The Entertainer, Green’s and Toy World, proving popular with customers wishing to purchhse at a specalist outlet with a correspondingly wider range of products and a higher level of expertise. Further competition is expected in the area of pre school products with companies such as Mothercare and Early Learning Centre concentrating on extending their market share (Bainbridge 2004).

Woolworth’s product strategy has varied between ranges. For the Kids and Celebrations strategy, the aim was to increasing the range of products available and resulted in increased sales for Electrical, Communications and Kids Dress Up ranges. For Confectionary, Gift and Events, the approach was concentrating on differentiating our offer from that of the competition, whilst in the Clothing sector the traded margin was moved forward as suppliers were managed to be able to react to seasonal changes more quickly. ( Woolworth’s long term aim would seem to be to concentrate their high street stores on the Kids and Celebrations concept. They may have identified this as a market where current levels of demand are not being filled.

In October 2004, Woolworth completed the roll out of the new Kingstore till system ( This allowed better control of store stock levels and an increase in availability of items, as well as faster transaction times for customers.

Early in 2004, Woolworth reviewed its BigW strategy and decided that the concept would be downsized both in terms of number of stores and store square meterage. They view the optimum number of out of town sites to be seventeen with an average floor space of 40,000 square feet. By the end of 2005, they plan to have four stores operating which will be used to refine the proposition before any further investment is made in our other sites ( decision comes at a time when research is indicating that consumers have become disillusioned with the out of town mega store concept (Spector 2005). It would be interesting to know whether the management at Woolworth with their internal competence of understanding markets and customers, predicted this shift, whether it is a response to the findings, or whether it was merely a lucky coincidence.

In the second half of 2004, Woolworth’s completed its purchase of Flogistics, a gift voucher sale and distribution company, from Kingfisher ( This is not considered by the writer to be a major change of strategic direction, but more of a utilisation of Woolworth’s internal competencies around warehousing and distribution.

It is not just retailer competition that presents a risk to Woolworth’s business. The practice of piracy is blamed for a dramatic drop in DVD sales over the Christmas period. The CEO of Woolworth UK blamed replication plants in China pumping out counterfeit (cited in author unknown 2205) as the reason behind disappointing sales of Harry Potter, Shrek 2 and Spiderman 2. It would be interesting to know what, if any, actions are being considered by the major retailers to counteract this problem, as reducing the incidents would be equally attractive to the suppliers as the retailers.

In terms of industry life cycle, the retail business as a whole is still in the growth stage. New entrants are continuing to emerge and the supermarkets have identified the non-food sector of their businesses as a future growth area . There are no obvious signs that maturity has been reached although this may become the case should retail spending continue to decline. VALUE CHAIN.

Campbell et al summarise the value chain analysis under four areas: identification of core activities and their relationships to core competencies and current organisational strategies; identification of the effectiveness and efficiency of the individual activities; examination of linkages between activities for additional added value; and identification of blockages which reduce the organisation’s competitive advantage (Campbell et al 1999 pp. 35). Porter saw the possibilties of applying this to startegic analysis in terms of linking the added value that each part of the organisation contributes to the whole organisation; and the contribution to the competitive advantage of the whole organisation that each of these parts might then make (Porter cited in Lynch pp. 216 2003).

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As previously mentioned, Woolworth undertook a detailed review of their operation in 2002 to identify where value chain improvements could be achieved. The writer considers it unlikely that Woolworth saw this as a strategy with a specified end point and would expect them to continually review this area as an ongoing profit generator. The state of the support activities is seen by the writer as being as follows. Having established a firm infrastructure through reintegrating the BigW and Woolworths General Stores product sourcing arm into the mainchain function, they are able to maximise their power over their suppliers. The procurement department is able to negotiate with suppliers with efficiencies of bulk and with a strong knowledge of stockholding requirements following the introduction of the replenishment system and Kingstore tills.

Being able to accuratley forecast sales of a product reduces the instances of being left with extra stock to be jobbed off, ensure maximisation of sales with reduced problems of stock outages, allows for long range planning of warehousing and distribution requirements and provides a foundation from which to be able to give the supplier confidence in the ordering levels, which allows them to take similar advantages. Human resources management is a key area of any business. By ensuring close management of areas such as training and development, recruitment and reward policies, Woolworths are able to maintain control of costs.

The recent emergence of the psychological contract to replace the concept of a job for life, has put pressure on employers to offer their employees more than just a days pay for a days work. Employees are seeking opportunities for development and reward strategies that give them the option of investing in their employer through share save schemes. The low unemployment rates in the UK places Woolworths and its compettors in a difficult situation having to balance the spending on employee benefits against the pressure of trying to atract the best candidates. Woolworth offers a graduate recruitment scheme to attract what they se as the managers of the future.

Technological development has been reduced as a direct result of cost saving intiatives in terms of the RFID research, and there is little eveidence of any investment in terms of the alternative shopping channels. Again, whilst making savings in the value chain, there is an associated risk of falling behind the competition and losing market share as well as long term financial benefits.

Woolworths concentrates its warehousing operations at one site in Swindon and complements this with smaller, satallite operations on a regional basis. This gives them some advantages in terms of minimising investments in storage facilites and reducing double handling between sites, but puts them at risk of needing temporary extra facilities at peak trading times, the period when such facilites are at the highest price. Having a structure of three of four large regional distribution facilites can be seen as the most effective method as it allows for sufficient expansion when required and unneeded space could be sublet at quieter times. Woolworth are also increasing the practice of suppliers delivering directly to the stores ( which reduces the distribution costs significantly.

There has been little change in the area of customer service for Woolworths in the recent past, continuing to rely on what are now considered to be the more traditional systems within their high street stores. They have invested in the Kingstore till system, but are not yet able to offer automated credit card systems in store. Value is possibly being added through this strategy as they are not having to invest in new technology or by innovative customer service methods, however, these are often viewed by customers as a source of competitive advantage.

The operational structure of Woolworth has been integrated, as previously mentioned, by amalgamating the BigW and Woolworth General Stores procurement functions into themain business and also through consollidating the Local and City formats ( This centralised structure enables the company to maximise value chain activities in an upstream direction i.e. in areas such as purchasing, distribution and customer serice, but may limit their abilities to do the same in a downstream direction i.e. innovation, product development and marketing (Lynch 2003).

Ghosh (1998) noted that the growth of e-commerce allowed four further methods of adding value: offering extra low cost services to customers, sharing customers with other businesses, utilising internal competencies in information technology to provide customer service and leveraging the ability to transact over the Internet to provide more value than others.

Woolworth may consider reviewing these specific areas of the value chain in the future, as e-commerce becomes a more and more significant retailing channel. CURRENT SOURCES OF COMPETITIVE ADVANTAGE.

Several of Woolworth’s competitive advantages have already been discussed, but two are seen to be particularly significant. Woolworth’s has a group of in-store brands including Ladybird, Gloss and Chad Valley, for which they have exclusive rights. The Ladybird brand caters for the children’s clothing market for ages 0- 9 years. It is third in the children’s wear market with a market share of 5%.Gloss is positioned to pick up the Ladybird consumers as they become older through offering fashionable clothes at a low price point to the 7- 11 female age group. Chad Valley is a well-established range of toys launched in 1991, although the name had been in existence since 1860. Trading under the banner of safe, low priced toys for children from birth to 8 years old, it has become one of Woolworth’s most recognised offerings (

 Woolworth is well positioned to benefit from the trend away from large supermarkets. Many of the major retailers such as Tesco, are opening more small scale outlets aimed at providing for the consumers who have become disillusioned with driving to out of town sites and shopping in large, busy superstores which they find to be time consuming, the trend is towards smaller outlets which as seen as quicker and more convenient to the shopper. Woolworth’s uptake on this has been seen through its decision to scale back on the BigW concept and what was previously seen as a risk to the business, maintaining high street locations rather then move in shopping centres, should pay dividends in the future (Spector 2005).

Woolworth’s were unable to counteract the competition from specialist, category killers and discounters because they lacked the range of capabilities and understanding of the markets to be able to challenge them once they had become established (Faulkner et al 2003). They do, however, possess several significant core competencies, some of which are historic, others which are more recent in their development.
Woolworths push for sales over the Christmas period led to the decision to adopt an iconic approach to advertising with the introduction of Wooly and Worth, sheep and sheepdog puppets. This approach is seen as a solid one in the current advertising climate with, for example, the Jamie Oliver/Sainsburys connection. This approach gives the comnsumer a recognisable icon with whom they associate a company to the stage where the association takes place without mention of the brand.

Woolworth say they will continue to use the puppets as they proved successful by being remembered by the public and Woolworths have now developed a range of merchandise based on the characters (

Woolworths strengths lie mainly in its history and reputation. Having become international as early as the 1920s, Woolworths built and maintained a high level of knowledge around the nature of markets. Their position as a household name also helped them become a highly regarded employer, particularly in the mid 20th Century and the company still benefits from having a core of dedicated employees. However, the writer believes it also suffered from outdated support systems and a tired appearance to its stores.

Woolworths has developed expertise in the supply chain area of the business over the years as seen with its joint ventures offering distribution experience. One of the main changes in the supply chain over the next few years will be the introdution of Radio Frequncy Identity Tagging. Marking the individual stock items (usually through the use of a barcode) allows them to be tracked from production to consumption allowing both more efficient inventory control and insights into consumer habits. Woolworth began research into RFID since 2002, but in 2004 announced that it would put the trials on hold. Woolworths’ head of central logistics, Geoff O’Neill, is quoted as saying ‘RFID is part of our supply chain strategy for the future. We will get around to it and the technology will be even better then. A two to three year wait may not be a bad thing (cited in Watson 2004). He claimed that the decision was due to the fact that our chief executive has decided to prioritise other things right now (cited in Watson 2004). It remains to be seen how this decision will impact Woolworths capabilites in the future as many of its competitors are continung with their trials and plan to have RFID systems in place by 2007 (Watson 2004).

Woolworth’s have had three successive years of improving the operational efficiency of the organisation. Gross margin has improved by 90 base points of the last two years, achieved through better sourcing, product development and continuous improvement to the ranges (

Woolworth is facing many of the common challenges for today’s retailers. The variety store market is saturated leading to intense internal competition as well as the threat of increasing discount stores and specialist retailers. Furthermore the strategy of the large supermarkets to increase their share of the non-food market is proving very successful and with their power over their suppliers and the size of their outlets, they are able to offer electronics, clothes and entertainment items that were previously the mainstay of the variety retailer. This has led many companies to become overextended, with inconsistent financial results and rapid transition through the retail lifecycle leading to them reaching the maturity stage earlier and having to reinvent themselves more often.

Growth strategies are having to change direction to asset intensification or innovation. Existing product ranges, stores and customers need to be maximised so measures such as footfall, spend per basket and numbers of items become key indicators. To take on the dynamic sectors, such as the leisure, healthcare and mobile phones, mature retailers need to take full advantage of their economies of scale to be able to drive down prices through improving their infrastructure, supply chain and marketing.

Many of the organisations which are outperforming their competitors in terms of revenue and profits, are doing so through optimising the opportunities that are available to them. Common strategies include focussing on the home-related categories which are popular at a time when the housing market is strong, demonstrating a strong commitment to added value and targeting the groups with higher levels of disposable income (those who do not yet have a mortgage and those who have completed paying their mortgage) (Chowdhury 2000).

It has been mentioned in the initial part of this paper that the constraints on Woolworth’s ability to re-establish itself as a market leader are it’s limited capabilities and lack of appreciation of the potentiality of new markets (Faulkner et al 2003). Faulkner et al see a lack of options as a fundamental barrier to retail success and comment that it is necessary for a company to maintain a portfolio of new options for its future by building new capabilities and simultaneously expanding its knowledge of new market segments and customer behaviour (Faulkner et al pp. 283). They go on to suggest three specific forms of options: a new concept that is yet untested, a concept that has undergone limited trials and, lastly, a stand alone business that has remained undeveloped (Faulkner et al 2003). Woolworth’s has been able to exercise one of these options in the past when it took the pilot concept that was Foot Locker and turn it into the dominant core of their business in the USA. They may be tempted to do this again, possibly in the U.K. market, with it’s at present fledgling concepts such as 2.Entertain. There are definite benefits to this approach, as it would not require the large investment needed to develop every option available to them, but due to a strong initial foothold in the sector, it could be quickly scaled up.

Faulkner et al see a strong benefit in maintaining a range of options at differing levels of development (Faulkner et al 2003). If an organisation is able to respond to a development in the retail market that is growing significantly by expanding an already tried and tested concept, the organisation will have the required competencies to maximise their share of that particular market before their potential competitors have had the time and been able to make the investment, in developing the concept from scratch. This would suggest that Woolworth should continue to trial new concepts to be able to develop them fully when the market conditions are right.

Having in depth internal knowledge around markets and consumers is not enough for an organisation to be successful, they also need to be able to utilise this knowledge by being able to apply it at some stage of the value chain. In its simplest terms, it is not sufficient for an organisation to have in depth knowledge of the potential sock market, for example, in the UK if they have no way of sourcing, distributing or selling them.
Woolworth’s strategy in the past has been diversification around related brands i.e. specialising in products that had been available in their stores such as music and videos or shoes, and selling them through both related and diversified channels, such as was done in the US with Footlocker or, the case of music downloads, to complement compact discs. This approach requires constant research into markets and consumers as well as the ability to implement what they learn.

Verdict analyst Nick Gladding, quoted in Marketing magazine, highlights the fact that retailers such as Woolworth and WH Smith had previously relied on location as a Unique Selling Point and that this advantage has now been lost. He suggests that both companies should focus on their areas of expertise: WH Smith’s should be education, and Woolworths’ should concentrate on kids and celebrations (cited by Barnes 2005).Gladding also believes that price is the deciding factor for the consumer who has many choices of retailer in an aready saturated high street market and with the plans of Tesco to open non-food general stores. He suggests that Woolowrths and WH Smiths strategy to counter this should be a merger between them and points to the success of the merger between Birthdays and Clintons Cards (cited in Barnes 2005).
Woolworth’s needs to focus on three areas for the future.

Firstly, there is the ever present need to identify gaps in the mar

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