Woolworths on the verge of collapse
29 Nov 2008
The century old high street icon Woolworths is the latest retail casualty of a severe slump in consumer spending in UK. With it's almost certain collapse and a loss of 25, 000 jobs on the horizon the directors of the company have appointed Deloitte as administrators to find a buyer for the 800-odd chain of stores of the beleaguered retailer.
Placing a company into administration in the UK is akin to filing for bankruptcy protection in the US. Administrators try to salvage as much of the company as possible for the benefit of its creditors. Administrators can try to keep the business as a going concern or breaking it up and selling it off.
Deloitte is looking for buyers either for the entire business or in parts. It is also in charge of Entertainment UK Ltd., the wholesale distributor of entertainment products of Woolworths.
Two parts of the Woolworths group - its 2Entertain DVD publishing joint venture with BBC Worldwide and its Bertram book wholesale business - are not in administration.
BBC's commercial arm has a 60:40 joint venture with 2entertain. The latter publishes DVDs like Doctor Who and the Blue Planet. The company is in ongoing discussions to sell its 40 per cent stake in 2Entertain to BBC Worldwide, which may pay Woolworths more than £100m for buying out its stake in the joint venture.
Woolworths has £385m of debt and its largest creditors are Burdale and GMAC. The latter have to approve the plan but if they don't, Woolworths may get into cash flow crisis.
BBC Worldwide still has to do due diligence and secure approval from the BBC Trust for buying the stake hence there is no certainty about the fact that the BBC will close the deal.
Normally creditors of retailers wait until January before proceeding with pulling the plug. This is to allow the shops to make as much money as possible during the festive season. This year however, Christmas shopping is likely to be on a low key.
Deloitte had hired Hilco to assist in the management of Woolworths. Hilco is a restructuring company, which earlier tried to buy Woolworths' 800-store retail chain for £1. Hilco is expected to begin a huge stock clearance sales at Woolworths that will affect the retailer's rivals over the critical Christmas shopping period.
Deloitte said it has received a number of approaches from interested buyers, both for Woolworths and for EUK.
Tesco, Waitrose and Sainsbury's are all said to be interested in buying some of Woolworths stores. HMV, Boots and WH Smith are also said to have shown interest.
Another retailer, Iceland, tried to buy the Woolworths store chain earlier, said it would not bid again for the whole business and is now interested only in buying some of the stores.
In another blow to Woolworths, it has been stripped of its right to sell National Lottery tickets by Camelot, the lottery operator.
Retailers across UK have reported plummeting sales in recent months as unemployment is growing and house prices crashing. The slide in the value of the British pound has also raised the cost of buying goods from overseas.
Department stores like Marks & Spencer PLC, Debenhams and Selfridges have started pre Christmas discount sales much before the festival to attract shoppers.
Woolworths opened the first store in 1909 under the FW Woolworths brand - a subsidiary of its U.S. parent. At the height of its success, a new Woolworths store opened every fortnight.
However, in the recent past Woolworths has been losing relevance as rival supermarket chains are expanding aggressively encroaching into its traditional business, selling everything from bed linen to toys and underwear.
Woolworths' shares were suspended from trading on Wednesday and were not worth more than a penny each.
