No more wonder from Woolies?

The collapse of both Woolworths and MFI on the same day was no great surprise. The timing was unhelpful to the government, coming just two days after their announcement of the 2.5% cut in VAT that they presented as the way to stimulate retail spending before Christmas and beyond.

Sage retail analysts have been invited in to studios to tell us it is just the weakest store groups going down, and to imply some inevitability about it. It is still not good news. There is a Woolworths on most High Street. If they cannot find a buyer quickly there will be fire sales on the High Street, doing damage to shops near by, followed by more blank frontage as the shops are closed. It’s bad news for the retail market generally, and for all those who make their living out of promoting shopping in our Town centres and offering us goods there. These are casualties of the Credit Crunch.

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6 Comments

  1. Stephen Southworth
    Posted November 27, 2008 at 11:32 am | Permalink

    The worrying thing for the broader economy is that the final nail in the coffin of Woolworths appears to have been the trade credit insurers actions. They were not prepared to insure suppliers to Woolworths, forcing Woolworths to pay in cash for the goods. What other big name high street players are in the same boat I wonder?

    • Alan Douglas
      Posted November 27, 2008 at 6:08 pm | Permalink

      John,

      One of the major reasons Woolworths is in trouble is precisely because they ARE in the High Street.

      That's the street near which parking is quite impossible, or at least very expensive, and worrying if one has pre-bought the parking ticket (got to get back, no time to browse or extend one's shopping), compared to the FREE supermarket car park where one can come and go at leisure, and it is FREE..

      The "harass drivers" policies of most councils are directly to blame for the demise of the High Street, of which Woolworths vanishing is merely the latest proof. We are literally being charged, taxed and penalised for any desire to run a shop in town, or to shop in them.

      There are also ridiculous rules about when they can accept deliveries, which will add costs.

      Alan Douglas

  2. rugfish
    Posted November 27, 2008 at 1:27 pm | Permalink

    The way I heard it, GMAC pulled the plug on their loan to Woolworths which led to it seeking administration.

    I'd be asking why the government in light of their wanting banks to lend, are not pushing banks to pick up a new loan to help refinance Woolworths, and I'd be putting mandelson's head on this by asking whether he has thought to arrange some form of guarantee for Woolies rather than a guarantee of unemployment for their staff.

    This would likely give Woolworths time to restructure, market itself for sale if need be, or slim down its operations to stay afloat.

    Woolworths is no less of a British institutional retailer than Northern Rock is for heavens sake so instead of Northern Rock meeting its repayments early, why doesn't the government look at making a few bob out of keeping Woolies going ?

    How much will it cost the taxpayer otherwise in benefit claims and the potential social upheaval for 30,000 families ?

  3. mikestallard
    Posted November 27, 2008 at 7:29 pm | Permalink

    Here in Wisbech, we are the remains of an agricultural society which was once dependent on the river for trade. Now the roads are antique and the rail doesn't quite reach here any more. We are, therefore, pretty poor.
    So you would think that our huge Woolworths would be full up, wouldn't you.
    Well no, actually. We now have Poundland and several other stores which sell a lot of things very cheaply. We have, also, a lot of charity shops which do the same. And then there is the market.
    For the rich, Wisbech boasts rich shops full of hacking jackets, polo necked sweaters and tweeds for shootin' etc.
    Normal people have to go to Lynn.
    I am afraid that dear old Woolies is going the same way as the C of E, the Empire, the Monarchy and the Labour Party with their flat 'ats.

    One thing I have noticed that may be of interest is this. In the 1980s, the Conservatives allowed (in my opinion, quite rightly) the North to lose its manufactures, TU power, coal, steel, railways and so on. This caused hatred of Mrs Thatcher which still exists today.
    Now it is the turn of the Northern Labour Party to return the compliment for the South where the City, the tax hand outs, the shops and the banks are being allowed to go under.
    Tit for Tat?

  4. Tony Makara
    Posted November 27, 2008 at 9:30 pm | Permalink

    The daily collapse of the service sector raises fundamental questions about the future direction of the British economy. The service sector has only been able to survive in a low wage non-productive economy because credit has propped up disposible income and created artifical demand. Now that the credit supply has collapsed the service sector is folding like a badly stacked set of playing cards. The service sector economy is dying, it has not been the post-industrial panacea people believed it would be thirty years ago.

    The British economy now needs to be rebalanced, with a leading role for hard industries that can pay for better wages out of productivty, reducing the need for credit and state top-ups to maintain living standards. We are now literally paying every day for having our economy led by the tail-end of the economic process, the cart cannot lead the horse and the service sector has shown that it cannot be the leading force in economic life.

  5. Derek
    Posted November 28, 2008 at 7:53 am | Permalink

    Woolies business model was outmoded, but the situation is far more serious than a post mortem of Darwinian chopping out of dead wood for green shoots to replace it suggests. Many healthy businesses across all sectors will become collateral damage in the credit crunch.

    Although, it's quite interesting that by remaining independent from government money Barclays has retained the prerogative not to throw good money after bad.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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