Woolworths: the fall of a high street giant

Woolworths: the fall of a high street giant

Woolworths is traditionally aggressive at Christmas but, with at least 400,000 phones to shift in less than one month, many are expecting high levels of box breaking.

The fall of high street giant Woolworths has brought the current economic problems to the mainstream, making at least 30,000 people redundant in the process.

Within the mobile industry the retailer’s collapse has raised fears of mass box breaking, as prices are cut and administrators look to raise as much cash as possible from stock amassed over several years.

The restructuring firm Hilco, drafted in by administrator Deloitte, said it would cut prices on phones in the run-up to Christmas, typically the retailer’s busiest sales period.

Huge ‘50% off’ signs went up in stores last Friday (5 December).

Woolworths has traditionally been one of the biggest prepay retailers, with its position soaring in the run-up to Christmas. Industry experts estimate that up to 80% of Woolworths’ one million phone sales per year takes place during the six weeks before Christmas.

Even with slowing sales taken into account, it is believed that Woolworths has at least 400,000 phones to shift in less than one month. Sources also claim there is stock in Woolworths’ warehouses that is as much as three years old. Certainly, industry experts believe prices will be competitive during the period. With the main priority being to shift stock, and no major concern regarding operator clawbacks, many industry experts say box breaking is inevitable.

Operators are understood to have tens of thousands of subsidised handsets in the retailer’s 815 stores, and no means of recovering clawbacks if they are not activated by genuine customers. Although Woolworths’ administrator was previously adamant there would be no immediate price reductions, it could not confirm if there would be a limit to the number of handsets bought by a single customer.

Graeme Hutchinson, Ghost Telecom’s chief operating officer and former Virgin Mobile sales director, says Woolworths is traditionally very aggressive at Christmas, which can mean there is a margin for box breaking: ‘In a time of difficulty, some of the controls will not be as rigorously managed. Woolworths’ current turmoil is likely to be very distracting to their staff.’

Cost slashing
Sources estimate that even before it went into administration, the retailer’s phones were split 50/50 on average into good and bad connections, depending on the richness of the deals. With time running out, box breakers are understood to be paying careful attention to events.

One source estimates that phones will have a 30% to 40% reduction in cost. While consumers cut back on spending, people expect that Woolworths will need to sell off its stock. Many seized the opportunity, piling into the stores last Friday as the 50% across the board discount was announced.

One source says: ‘It’s stupid numbers. Because it is a well-known brand, the public expect it – and they are going to want to move the stock. They are not buying stock, it’s what they’ve got now. The stock being sold off lower than it should be is a given.’

Another source agrees, adding: ‘In the general retail space they were a reasonably sizable player – their market is prepay, and they are average on accessories.’ He predicts that the retailer will trade normally through Christmas and will attempt to exit stock in the New Year.
Buy-back scheme

Woolworths has historically come under fire regarding its policies. In August, Woolworths and Comment Retail Services refused to respond to allegations that an organised buy-back operation may have been in place between the two companies over a prolonged period. Although not illegal, the scheme would have artificially increased sales figures and contravened rules limiting the number of handsets that could be sold to a customer. It was alleged that the two companies worked together to buy back operator-subsidised prepay stock that had not been bought by genuine customers. Woolworths denied the claims.

In October, Mobile reported that Virgin Mobile was investigating whether it was misled over its sales in Woolworths. Documents suggested that Woolworths and Comment Retail ran a buy-back scheme that began in 2006. At the time it was understood that Virgin Mobile was ready to raise concerns with the retailer.

Troubled times for Woolworths have had a knock on effect on its associates. Comment Retail Services also fell into administration last week after the collapse of the retailer – one of its biggest customers. It is thought that Fone Logistics, which is owed around £450,000 after supplying Comment, is most at risk from the collapse.

Reliant on cash
One distributor points out that Woolworths is reliant on cash as ‘a lot of people they were supplying to have now stopped providing stock amid the instability’. Even more worryingly, it is unlikely that the retailer’s staff – fretful of their jobs – will care about preventing box breaking. The distributor adds: ‘In this kind of situation a lot of the old rules go out the window.’

However, another senior distributor argues that price reductions at Woolworths will have little impact. He says: ‘I doubt that their stock holding is that huge, or that they are sitting on piles of stock. My own view would be the policy will go and they will be able to liquidate all that stock.’

But when Woolworths no longer exists, box breakers could ‘get a kicking’, according to another distributor. He says: ‘Box breaking is driven by the networks. With the networks having not so much money it will go down. Box breaking will happen less and less because people want low-acquisition such as Sim-only handsets, although I don’t think you will ever completely eliminate it.’

However, another source says: ‘I think box breakers will continue to do what they do. What the industry needs is sensible pricing – the more you can bundle things the better.’

Hutchinson says that to stop box breaking, networks need to take a ‘more radical approach’. He adds: ‘While the networks maintain significant subsidy handsets it will happen.’ Another senior industry source adds: ‘To lay yourself at the mercy of the trading high street seems out of date – it’s a real conundrum.’

Woolworths has traditionally attracted a lower, younger demographic when it comes to selling phones. As one source points out: ‘You wouldn’t compare a Woolworths store with a specialist one.’ Since the retailer concentrates on the bottom end of the prepay market, in the longer term it will be ‘lost in the noise’, according to one senior executive. Once the retailer has fully collapsed, someone will need to take on its customers. One industry executive says the supermarkets will be the winners, and WHSmith will also draw some of its customers.

Another senior distributor argues that Woolworths’ customers will go to Argos, although he says: ‘I’m not convinced it is a big category.’ According to him, the size of the category (which includes Argos and Littlewoods) was big for manufacturers such as Fly. He adds: ‘For people like this, it could mean they have no distribution. People want a brand elsewhere.’

The beginning

Woolworths Group was founded in 1909 in Liverpool, England. The British group owns Woolworths as well as other brands, such as Entertainment UK and Bertram Books. The 800-strong chain of Woolworths stores was a supplier of Ladybird children’s clothing and was a well-known supplier of pick‘n’mix sweets.

It was only in more recent years that the brand moved into the electronics and entertainment aspects of retail, after it bought Entertainment UK and created larger stores on the high street and s

Written by Mobile Today
Mobile Today


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