Woolworths demise 15 years on: What happened at the retail giant and could it come back?
Parachuted in to turn around a failing giant of the British high street, Robert McDonald was part of Woolworths’s last roll of the dice.
The new finance director said he was excited to join an “iconic” brand when he began work in early November 2008, but just three weeks later the company would sink into administration.
And there was little the company’s last ever executive hire could do to stop the famous store – known for its pick ‘n’ mix, homeware and everything in between – from closing for good on 6 January 2009.
“Like everyone my age, I had grown up thinking its existence was a normal part of life,” Mr McDonald told Sky News.
“I was very pleased to have the opportunity to work there. I knew it was going through hard times and looked forward to being able to help.
“But, sadly, it was past that by the time I joined, and the end seemed very swift.”
Analysts blame its downfall on a toxic combination of low cash reserves, lost credit insurance and crippling debt – all exacerbated by the 2008 financial crisis.
It marked the end of Woolies’s near century-long presence on the high street, with more than 800 stores closed down and about 27,000 jobs lost.
Woolworths was popular for its pic ‘n’ mix
For many of its staff, news of Woolworths’s demise into administration came from the media, with earlier rumours confirmed in reports on 26 November 2008.
Paul Seaton, who had worked as a store manager and as part of the IT team during 25 years at the company, said his colleagues “crowded around the TV” to hear their worst fears confirmed.
“It just all fell to pieces after that,” Mr Seaton, now 61, told Sky News.
“The sad reality is Woolworths took 99 years to build, and it took 42 days from administration to the day the last door shut. 99 years of meticulous care and thought… gone.”
The board insisted administration wouldn’t detract from “business as usual”, Mr Seaton said, but that all changed when he was called to a meeting on 5 December.
He was among 500 senior figures gathered at Woolworths HQ, where each was given a letter written by administrators Deloitte notifying none would be paid another day and all had lost their jobs with immediate effect.
The notice given by Deloitte to Paul Seaton
“We were summoned and told not to come back, all 500 of us,” Mr Seaton said, adding their passes into the building were deactivated on the spot. “The business only carried on for one month after that.”
While his time at the company came to an abrupt end, he dedicated time to creating a virtual Woolworths museum, preserving memorabilia and documenting the chain’s long history.
A store for the family
The first store opened in November 1909 in Liverpool, by New Yorker Frank Woolworth, who had already established the brand in the US.
In a prescient diary entry, he wrote during an earlier trip to Europe that “a good penny and sixpence store, run by a live Yankee, would be a sensation here”.
Such was the success of the UK counterpart, his successor Byron Miller reportedly beamed that “the child has long since outgrown the parent”.
Mr Seaton thinks the literal child-parent relationship was key to the store’s popularity.
“There used to be old adage that people need Tesco because everyone has to eat, and people trust Boots because you call the manager ‘doctor’, but they went to Woolworths because they love Woolworths,” he said.
“Have you ever heard a kid saying ‘mum I want to go to Tesco’? The whole reason I loved being a manager is kids and families loved coming to Woolworths.”
Paul Seaton with Woolworths memorabilia collected over the years
The store’s name lives on in Australia – though has no connection with US or UK equivalents – where it is the country’s largest supermarket chain and last year recorded a net profit of $1.62bn (about £87bn).
US stores closed in 1997, but the UK branches recorded a record profit topping £100m just one year later.
What went wrong?
Customers were still shopping at the UK stores, and in the firm’s final annual report the company made a slight pre-tax profit in 2007.
But even with some signs of recovery ahead of 2008, Woolworths had a terminal problem: modest cash flow and a £385m mountain of debt.
Retail expert Clare Bailey was among the consultants drafted in 2006 to tackle the mammoth task of detangling the company’s supply chain, which she says was collecting too much of some stock and too little of others.
As banks began to lose faith in Woolworths’s finances, the firm had its credit insurance withdrawn – meaning it had to pay suppliers immediately, rather than in instalments.
To make matters worse, many Woolworths stores were sold a few years before and rented back at a price that only appeared to increase over the years.
Left with fewer assets, little in way of cash reserves and no credit insurance, the retailer was not prepared for the coming shock of the 2008 financial crisis.
“Cashflow is like oxygen,” Ms Bailey told Sky News. “You can be profitable, but if you haven’t got cash to pay bills or for when something goes wrong, then that’s it – game over.”
The company reported a pre-tax loss of £90.8m over the first half of 2008 in September that year, despite launching the WorthIt range – promoting low-cost products – in 2007.
Losing sales and customers
One of the big issues Ms Bailey identified in the supply chain was a failure to keep evergreen products on shelves.
For example, she said only 20 stores out of more than 800 nationwide had the correct amount of coat hangers, a product that sells all year, while others bought far too many Christmas trees.
It meant money was “trapped in stocks”, she said, and would gradually turn customers away.
“And if you replicate that through other products, customers could find what they didn’t want, but not what they wanted,” she said.
“You might, as a customer, give them the benefit of the doubt a few times, but eventually they will turn to other places. So, they not only lost the sale – they also lost the customers.”
It’s this perceived neglect of the customer journey that small business growth expert Claire Hancott believes cost Woolworths at the turn of the century.
Footfall almost halved from 7.5 million in 2000 to around 4.5 million in 2007, she said, while the market for Woolworths’s once-popular CDs was shrinking as more consumers headed to the internet.
“Businesses can’t ignore these big trends, even if they won’t come into play for years,” Ms Hancott told Sky News.
“Blockbusters was a classic example, when they thought digital films wouldn’t take off.
“Woolworths wasn’t at the forefront of consumer technology and it’s so important to be looking 10, 20 years into the future – it takes a long time to prepare.”
Discount stores such as pound shops began to pop up on the high street, adding to growing competition that ultimately forced an attempt to sell the company in November 2008 for – ironically – just £1.
It was hoped a sale to restructuring experts Hilco would give them the job of repaying the debt, but the banks rejected the move.
The company went into administration just days later.
A false dawn, but will the sun rise on Woolworths again?
Ever since the company collapsed under the weight of its debt, rumours of a potential return to the high street have never been completely quashed.
A fake announcement – made by a social media account falsely claiming to be run by Woolworths – heralding a comeback was met with excitement in 2020, with savings platform Raisin UK reporting 44% of people discussing the store’s revival online “loved the news”.
The post turned out to be false
In August 2022, pollsters at YouGov found 49% of survey respondents said they wished they could bring back Woolies – a far higher proportion than any other defunct chain.
But for all the hopes of an encore, some of those involved with the firm rue the time that has since been lost – and believe it may have even survived.
“I came in at the end of 2006, but the work we were doing can take three or five years,” Ms Bailey said. “Maybe they started too late.”
All but a small handful of the Woolworths stores were re-let to other retailers within a decade, she added, meaning the spaces “still had merit in the local community”.
“The inner workings of a business are quite complicated,” she said.
“But I think it’s a sad situation it collapsed, because – had they been given a stay of execution – they may well have been successful in turning it around.”
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Ms Hancott agrees: “In another time, would it have crumbled? That’s the million-pound question that nobody will be able to answer.
“Had it not been in the midst of a crisis, then it may have survived.”
For Mr McDonald, a chance to draw on his experience handling company finances never materialised.
It was, nonetheless, a “fascinating experience”, he said.
“It’s such a shame we didn’t have longer to turn that business around,” he said.
“I joined as part of a turnaround plan, but it was too late to change the course of history.”
Talk to economists and they will tell you that the cost of living crisis is over.
They will point towards charts showing that while inflation is still above the Bank of England’s 2% target, it has come down considerably in recent years, and is now “only” hovering between 3% and 4%.
So why does the cost of living still feel like such a pressing issue for so many households? The short answer is because, depending on how you define it, it never ended.
Economists like to focus on the change in prices over the past year, and certainly on that measure inflation is down sharply, from double-digit levels in recent years.
But if you look over the past four years then the rate of change is at its highest since the early 1990s.
But even that understates the complexity of economic circumstances facing households around the country.
For if you want a sense of how current financial conditions really feel in people’s pockets, you really ought to offset inflation against wages, and then also take account of the impact of taxes.
That is a complex exercise – in part because no two households’ experience is alike.
But recent research from the Resolution Foundation illustrates some of the dynamics going on beneath the surface, and underlines that for many households the cost of living crisis is still very real indeed.
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UK inflation slows to 3.4%
The place to begin here is to recall that perhaps the best measure of economic “feelgood factor” is to subtract inflation and taxes from people’s nominal pay.
You end up with a statistic showing your real household disposable income.
Consider the projected pattern over the coming years. For a household earning £50,000, earnings are expected to increase by 10% between 2024/25 and 2027/28.
Subtract inflation projected over that period and all of a sudden that 10% drops to 2.5%.
Now subtract the real increase in payments of National Insurance and taxes and it’s down to 0.2%.
Now subtract projected council tax increases and all of a sudden what began as a 10% increase is actually a 0.1% decrease.
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Will we see tax rises in next budget?
Of course, the degree of change in your circumstances can differ depending on all sorts of factors. Some earners (especially those close to tax thresholds, which in this case includes those on £50,000) feel the impact of tax changes more than others.
Pensioners and those who own their homes outright benefit from a comparatively lower increase in housing costs in the coming years than those paying mortgages and (especially) rent.
Nor is everyone’s experience of inflation the same. In general, lower-income households pay considerably more of their earnings on essentials, like housing costs, food and energy. Some of those costs are going up rapidly – indeed, the UK faces higher power costs than any other developed economy.
But the ultimate verdict provides some clear patterns. Pensioners can expect further increases in their take-home pay in the coming years. Those who own their homes outright and with mortgages can likely expect earnings to outpace extra costs. But others are less fortunate. Those who rent their homes privately are projected to see sharp falls in their household income – and children are likely to see further falls in their economic welfare too.
The UK economy unexpectedly shrank in May, even after the worst of Donald Trump’s tariffs were paused, official figures showed.
A standard measure of economic growth, gross domestic product (GDP), contracted 0.1% in May, according to the Office for National Statistics (ONS).
Rather than a fall being anticipated, growth of 0.1% was forecast by economists polled by Reuters as big falls in production and construction were seen.
It followed a 0.3% contraction in April, when Mr Trump announced his country-specific tariffs and sparked a global trade war.
A 90-day pause on these import taxes, which has been extended, allowed more normality to resume.
This was borne out by other figures released by the ONS on Friday.
Exports to the United States rose £300m but “remained relatively low” following a “substantial decrease” in April, the data said.
Overall, there was a “large rise in goods imports and a fall in goods exports”.
A ‘disappointing’ but mixed picture
It’s “disappointing” news, Chancellor Rachel Reeves said. She and the government as a whole have repeatedly said growing the economy was their number one priority.
“I am determined to kickstart economic growth and deliver on that promise”, she added.
But the picture was not all bad.
Growth recorded in March was revised upwards, further indicating that companies invested to prepare for tariffs. Rather than GDP of 0.2%, the ONS said on Friday the figure was actually 0.4%.
It showed businesses moved forward activity to be ready for the extra taxes. Businesses were hit with higher employer national insurance contributions in April.
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The expansion in March means the economy still grew when the three months are looked at together.
While an interest rate cut in August had already been expected, investors upped their bets of a 0.25 percentage point fall in the Bank of England’s base interest rate.
Such a cut would bring down the rate to 4% and make borrowing cheaper.
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Is Britain going bankrupt?
Analysts from economic research firm Pantheon Macro said the data was not as bad as it looked.
“The size of the manufacturing drop looks erratic to us and should partly unwind… There are signs that GDP growth can rebound in June”, said Pantheon’s chief UK economist, Rob Wood.
Why did the economy shrink?
The drops in manufacturing came mostly due to slowed car-making, less oil and gas extraction and the pharmaceutical industry.
The fall was not larger because the services industry – the largest part of the economy – expanded, with law firms and computer programmers having a good month.
It made up for a “very weak” month for retailers, the ONS said.
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