A S18A1LClC AnAL?

SlS Cl WCCLWC81PS LC
AlMS
1he overall alms of Lhls plece of work ls Lo examlne why WoolworLhs LC has losL lLs poslLlon ln Lhe
markeL and wheLher Lhe company are capable of survlvlng over Lhe longLerm ln Lhls compeLlLlve
envlronmenL
1hls wlll be done Lhrough analyslng Lhe varleLy sLores lndusLry ln whlch WoolworLh operaLes Lhe
companys pasL presenL and fuLure growLh sLraLegles and lLs currenL performance uslng recognlsed
sLraLeglc Lools Lhe varlous opLlons avallable Lo Lhe company wlll be recommended and evaluaLed
ML1PCuCLCC?
1he MeLhodology LhaL wlll be used Lo complle Lhls dlsserLaLlon wlll malnly be ln Lhe form of
secondary research 1hls ls largely because Lhe naLure of Lhe pro[ecL requlres Lhe cooperaLlon of
managers aL very sLraLeglc level of Lhe company 1he Managers undersLand and have sufflclenL
lnformaLlon on Lhe sLraLeglc dlrecLlon of Lhe organlsaLlon 1he wrlLer was unable Lo arrange
lnLervlews wlLh Lhe managemenL ln Lhe company as lnformaLlon Lhey have cannoL be made publlc
for confldenLlal reasons As a resulL lL ls deemed LhaL Lhe lnformaLlon gaLherlng from oLher sources
wlLhln Lhe company would noL be as rellable as deslred for Lhls Loplc lnformal prlmary research
lnLervlews wlll be arranged Lo galn general lnformaLlon on WoolworLhs LCs pollcles and
operaLlons wlLh members of WoolworLhs sLore sLaff
Secondary lnformaLlon wlll also be used Lo complle Lhls dlsserLaLlon due Lo Lhe avallablllLy of rellable
and valld lnformaLlon on WoolworLhs LC and Lhe varleLy reLall lndusLry Secondary research wlll be
conducLed Lhrough examlnaLlon of annual reporLs and accounLs of Lhe company and lLs maln
compeLlLors 1o evaluaLe Lhese sources such as MlnLel MarkeLlng lnLelllgence 8eporLs and
MarkeLlng and 8uslness Lrade [ournals wlll be used ubllshed academlc books on SLraLeglc
ManagemenL wlll also be used Lo asslsL wlLh Lhe LheoreLlcal elemenLs of Lhls dlsserLaLlon
PlS1C8?
WoolworLhs ls generally descrlbed as a varleLy sLore 1hese are organlsaLlons LhaL concenLraLe Lhelr
efforLs on Lhe reLalllng of a range of producLs ln Lhe lower and more popular prlce ranges 1hey
provlde a walk ln shop and carry faclllLy as Lhe ma[or rouLe of purchaslng (home dellvery and pre
orderlng belng rare) wlLh open dlsplay and selfservlce merchandlslng 1hey are unllkely Lo be
deparLmenLallsed CLher relaLed caLegorles lnclude deparLmenL sLores dlscounLers and speclallsL
shops (also known as caLegory klllers) (Cxford Lngllsh ulcLlonary 2001)
WoolworLhs was flrsL esLabllshed by lrank Wlnfleld WoolworLh ln 1879 wlLh Lhe concepL of selllng
producLs cosLlng no more Lhan 3 cenLs 1hls proved a popular ldea wlLh Lhe consumers and Lhe
Lurnover conLlnued Lo grow 1he concepL was of no frllls shopplng wlLh a range of low prlced non
perlshable lLems When lW WoolworLh dled ln 1919 he had bullL an emplre of 1081 sLores wlLh
sales ln excess of $118 mllllon per year (laulkner eL al 2003) 1he company conLlnued Lo grow and
developed lnLernal compeLencles ln areas such as markeLlng flnance and esLaLes managemenL
(laulkner eL al 2003) laulkner eL al also commenL LhaL Lhls perlod of WoolworLhs hlsLory was
characLerlsed by Lhe focus of lLs sLraLegy lL was able Lo deepen lLs exlsLlng compeLencles and
lncremenLally expand boLh lLs compeLency base and lL knowledge of dlfferenL markeL envlronmenLs
(such as suburban reLalllng) (laulkner eL al pp 279 2003)
Powever Lhls was Lo prove lnsufflclenL when dlscounLers and caLegory klllers became more
prevalenL ln Lhe markeL WalMarL had begun Lradlng ln general merchandlse aL low prlces and
speclallsL reLallers such a 1oys 8 us provlded a desLlnaLlon shopplng locaLlon for Lhose consumers
seeklng a parLlcular producL a wlder range of producLs or speclallsL knowledge abouL Lhe producLs
WoolworLhs began a decllne ln sales ln real Lerms due Lo lLs lack of lnslghL of how Lo caplLallse on
Lhe prevalenL reLall preferences 1hey falled Lo Lake Lhe move Lo expand Lhelr buslness elLher lnLo a
wlder focus or a narrower one sLraLegles whlch would have glven Lhem a plaLform from whlch Lo
Lake on Lhelr compeLlLors
lL wasnL unLll Lhe laLe 1980s LhaL WoolworLhs changed Lhelr sLraLegy ln Lhe unlLed SLaLes wlLh Lhelr
dlverslflcaLlon lnLo speclallsL areas such as klds MarL and LlLLle lolks as well as enLerlng Lhe
dlscounL reLall buslness wlLh Lhe Woolco concepL Powever Lhey lacked Lhe compeLencles and
capablllLles Lo make up for Lhe Llme Lhey had losL whlch had allowed Lhelr compeLlLors Lo esLabllsh a
sLrong markeL lead and ln 1993 klds MarL and LlLLle lolks boLh closed down 1hls was on Lop of Lhe
closure of 400 sLores ln Lhe uSA and Lhe sale of 122 Canadlan Woolco sLores Lo WalMarL (laulkner
eL al 2003) Cne of Lhe speclallsL areas Lhey had enLered lnLo fooLwear dld prove Lo be a success and
led WoolworLhs ln Lhe uSA Lo open over 7 000 aLhleLlc fooLwear sLores coverlng a range of gender
and age segmenLs by 1998 1he company declded aL Lhls sLage Lo change lLs operaLlng name ln Lhe
uSA Lo Lhe venaLor Croup (laulkner eL al 2003) and Lo reposlLlon lLself as a speclallsL sporLs
fooLwear reLaller
1he groups buslness ln Lhe uk moved ln a dlfferenL dlrecLlon and kepL Lhe orlglnal company name
AL presenL ln Lhe uk WoolworLh currenLly owns around 900 sLores selllng Loys confecLlonary
house wares seasonal producLs and elecLronlc enLerLalnmenL 1he uk buslness has also moved lnLo
speclallsL areas wlLh Lhe lnLroducLlon of MvC home enLerLalnmenL and elecLronlcs whlch currenLly
has 83 shops Luk whlch ls Lhe largesL dlsLrlbuLor of home enLerLalnmenL producLs ln Lhe uk and
Lhe muslc and vldeo publlshlng arm vCl (Cornell daLe unknown) Pavlng become a publlc company ln
1931 WoolworLhs was brlefly Laken over ln 1982 by klngflsher buL reLurned Lo publlc ownershlp
agaln ln mld2001
WoolworLhs sLaLed alm ls Lo be aL Lhe hearL of Lhe communlLy and Lhe besL loved reLaller for klds
home and famlly lelsure (wwwwoolworLhsgroupplccom)
As wlll be seen WoolworLhs performance has been varlable over recenL years and ln !anuary 2003
Lhey recelved a Lakeover bld from Lhe prlvaLe equlLy group Apax AlLhough Lhe WoolworLhs board
re[ecLed LhaL offer a hlgher one was recelved four weeks laLer and ls currenLly under conslderaLlon
1hls means LhaL Lhe fuLure for WoolworLhs ls an uncerLaln one wlLh Lhe posslblllLy of a subsLanLlal
cash ln[ecLlon buL dlmlnlshed conLrol for Lhe currenL managemenL Leam Should Lhe Apax offer be
re[ecLed agaln WoolworLhs ls llkely Lo recelve offers from lLs ma[or compeLlLors C81L8S llvL
lC8CL AnAL?SlS
1hreaL of new enLranLs
uesplLe Lhe hlgh number of reLallers deallng wlLh general merchandlse Lwo areas are seen as belng
parLlcularly relevanL
CurrenLly Lhere are only Lwo caLalogue based shopplng concepLs ln Lhe uk Argos and nexL 1hls
markeL remalns hlghly underrepresenLed conslderlng Lhe success parLlcularly of Argos and lL could
be expecLed LhaL Lhe concepL wlll be Laken up by more companles ln fuLure 1hese buslnesses offer
Lhe full range of house wares elecLrlcal goods Loys and glfLs as avallable from WoolworLh and have
a dlsLlncL compeLlLlve advanLage ln Lhelr pracLlce of mlnlmal sLock holdlngs ln sLore allowlng exLra
selllng space Lo be released 1hey may face dlfflculLles ln flndlng Lhe number and slze of locaLlons
Lhey would need Lo become a ma[or player ln Lhls markeL buL Lhls could be overcome Lhrough Lhe
acqulslLlon of an exlsLlng reLaller
lurLher new enLranLs may be seen as forelgn companles Lry Lo lncrease Lhelr markeL share 1hese
have already been seen ln Lwo maln forms llrsLly Lhe speclallsL reLallers who sLarLed from noLhlng ln
Lhe uk and have achleved good organlc growLh Lxamples lnclude 1oys8us lkea Cap PM
8eneLon and oundsLreLcher 1he second group are Lhose who galn a fooLhold ln Lhe uk markeL
Lhrough acqulslLlon 1hese lnclude WalMarL 8ranLano and Clalres SLores 1here ls no reason Lo
expecL Lhe level of forelgn reLall lnLeresL ln Lhe uk Lo decrease
8argalnlng power of suppllers
1he bargalnlng power of suppllers has been much dlmlnlshed wlLh Lhe developmenL of ecommerce
8ecause of Lhe vasL lncrease ln access Lo lnformaLlon beLween poLenLlal suppllers and buyers Lhe
suppllers prlclng sLraLegy may be Lhe only way Lo secure buslness 1hls ls llkely Lo lncrease as more
use ls made of Lhe lnLerneL Cne recenL developmenL has been Lhe pracLlce of reverse aucLlons
where a reLaller speclfles whaL Lhey wanL and compeLlng suppllers ouL bld each oLher vla a web slLe
by lowerlng Lhe prlce raLher Lhan by ralslng lL as ln Lhe LradlLlonal aucLlon (wwwgusplccom)
Cnce suppllers have been agreed Lhe large slze of Lhls reLall secLor also ensures buyers can acL from
a sLrong negoLlaLlng base as Lhey have slgnlflcanL conLrol over Lhe fuLure healLh of dedlcaLed
suppllers 8ecenLly Lhere has been publlclLy around Lhe pracLlce of large reLallers seLLlng whaL are
seen as unfalr Lerms wlLh suppllers and of lnslsLlng on prlce reducLlons even Lhough Lhe suppller
Lhen operaLes aL a loss (1elegraph 2003) Powever lL ls noL expecLed LhaL any leglslaLlon wlll brlng
abouL changes ln Lhls slLuaLlon ln Lhe foreseeable fuLure
Cn Lhe negaLlve slde speclallsL suppllers such as Lhose supplylng moblle phones and compuLer
games have an lncreaslng amounL of power due Lo Lhe demand for Lhelr producLs A reLaller would
need Lo ensure Lhey have sufflclenL quanLlLles of a producL such as Lhe laLesL laySLaLlon for Lhe
ChrlsLmas markeL buL are frequenLly lefL ln Lhe hands of suppllers who can glve preferenLlal servlce
Lo oLher cusLomers
1hreaL of subsLlLuLes
roducL subsLlLuLlons can be used ln Lwo dlfferenL ways llrsLly as ls Lhe sLraLegy of many of Lhe
maln supermarkeLs own brand labels are seen as accepLable subsLlLuLlons for everyday grocery
lLems 1he cosL of subsLlLuLlon ls low Lo Lhe cusLomer le Lhey feel LhaL Lhere ls llLLle rlsk because of
Lhe loyalLy Lhey have Lo Lhe sLore 1he oLher Lype ls Lhrough lnLroduclng hlgher prlced luxury Lype
lLems 1hls sLraLegy can be seen ln Lhe Marks and Spencer food secLor where Lhey markeL Lhe
producLs as belng superlor Lo oLher brands lor Lhe varleLy reLallers Lhe concepL of subsLlLuLlon does
noL seem Lo have been fully explolLed and lL ls a posslble sLraLegy for securlng markeL share ln Lhe
fuLure
8argalnlng power of cusLomers
1he hlgh level of compeLlLlon amongsL reLallers has led Lo a poslLlon of power for Lhe consumer
Pavlng moved from seasonally drlven sales evenLs Lo permanenL deals Lhe aggresslveness of Lhese
approaches has also lncreased CusLomers now expecL Lo be able Lo geL Lhree for Lwo offers
LhroughouL Lhe year 1hls puLs Lhe reLaller aL a dlsadvanLage as Lhey wlll lose Lhe poLenLlal beneflLs
of LargeLlng markeLlng promoLlons and means Lhey are conLlnually forced Lo Lake Lhe paLh of
compeLlLlve prlclng 1hls can lead companles Lo over rely on Lhe proflLs made from a llmlLed range of
producLs whereas Lhe resL of Lhe ranges operaLe aL unsusLalnably low proflL marglns as loss leaders
CompeLlLlve rlvalry wlLhln Lhe lndusLry
1he varleLy sLores secLor ls hlghly compeLlLlve and Lhere ls no reason why Lhls should noL conLlnue Lo
be Lhe case lL ls suggesLed by reLall analysLs eLers LlworLhy and Moore LhaL Lhe varleLy sLore
buslness ln Lhe uk has become saLuraLed and LhaL Lhe larger sLores are llkely Lo Lake over or merge
wlLh Lhe lndependenLs (clLed ln oLLs 1996) CompeLlLlon from supersLores and supermarkeLs ls
expecLed Lo lncrease as Lhey add Lo Lhelr ranges of nonfood lLems ln a bld Lo galn a hlgher share of
Lhe overall consumer markeL (oLLs 1996)
lL ls also expecLed LhaL Lhe dlfferenLlaLlon beLween deparLmenL sLores varleLy sLores home
shopplng and supermarkeLs wlll become less sharp as reLallers look Lo alLernaLe channels and
lncreaslng producL ranges Lo maxlmlse Lhelr Lurnover (oLLs 1996) 1hls wlll make lL dlfflculL for new
enLranLs Lo enLer Lhe markeL unless Lhey beneflL from a unlque selllng polnL such as dlscounLlng as
has been seen wlLh companles such as Wllklnsons
LS1 AnAL?SlS
ollLlcal
Lcologlcal/envlronmenLal lssues CorporaLe Soclal 8esponslblllLy (CS8) 1he maln bellef around CS8
Lhlnklng ls LhaL Lhe pracLlce of buslnesses wlLhln Lhe caplLallsL economy Lo concenLraLe Lhelr efforLs
on provldlng wealLh for lLs shareholders ls unaccepLable and LhaL companles should Lake Lhe
responslblllLy of conslderlng Lhe wellbelng of socleLy as a whole (1he LconomlsL !anuary 22nd 2003)
lL has been counLered by Lynch LhaL fallure Lo make a speclflc sLaLemenL on eLhlcal lssues does noL
mean LhaL a company ls noL fundamenLally eLhlcal ln Lhe way LhaL lL does lLs buslness (Lynch 2003)
8eLallers generally are comlng under lncreaslng pressure Lo ensure Lhey cannoL be charged wlLh
poor pracLlces wlLh regard Lo Lhe developlng world or Lhe envlronmenL 1he acLlvlLles of and
publlclLy around Lhe anLlgloballsaLlon movemenL may dlssuade organlsaLlons from expandlng Lhelr
markeLs abroad alLhough many see Lhese as a small mlnorlLy and lL ls quesLlonable as Lo wheLher
Lhelr acLlvlLles would cause a company Lo alLer Lhelr sLraLegy lL ls more llkely LhaL Lhey wlll Lake Lhe
lssues lnLo accounL ln Lerms of havlng a robusL CS8 pollcy and when reporLlng Lo Lhe medla
WoolworLhs made Lhe followlng sLaLemenL on CS8 ln Lhelr laLesL flnanclal sLaLemenL uurlng
2003/4 Lhrough Lhe CS8 CommlLLee WoolworLhs Croup has conLlnued Lo work Lo undersLand Lhe
lmpacLs boLh poslLlve and negaLlve of our buslness
A proper undersLandlng of Lhe rlsks we musL manage and Lhe opporLunlLles we have Lo be a caLalysL
for lmprovemenL ls a fundamenLal parL of how we do buslness (wwwwoolworLhsgroupplccom)
WoolworLh has speclflc pollcles on Lhe areas of Llmber and chemlcal usage a sLrlcL code of eLhlcal
Lradlng and has seL up lLs own charlLy (WoolworLh klds llrsL) Lo provlde Lhe opporLunlLy for Lhelr
employees Lo help chlldren on a local basls (wwwwoolworLhsgroupplccom) WhllsL WoolworLhs
are ouLwardly Laklng Lhelr CS8 serlously lL ls an area LhaL has come from nowhere Lo heavlly lmpacL
organlsaLlons ln Lhe pasL and WoolworLh would do well Lo bear ln mlnd Lhe lmpacLs on nesLle of Lhe
baby mllk eplsode and on Marks and Spencer of Lhe sweaL shop lssues
LeglslaLlon a new WhlLe aper has been announced LhaL wlll glve reLallers Lhe ablllLy Lo offer legal
advlce Lhrough Lhelr own law companles uubbed 1esco Law lL provldes a furLher servlce Lo
encourage Lhe one sLop shop approach of Lhe large supermarkeL chalns (88C u) SupermarkeL
chalns whlch are one of WoolworLhs maln sources of compeLlLlon have had a sLraLegy of offerlng a
onesLop shop opporLunlLy Lo Lhelr cusLomers wlLh Lhe lnLroducLlon of such faclllLles as pharmacles
banklng faclllLles and lnsurance lL ls noL yeL known wheLher WoolworLhs ls plannlng Lo lnLroduce
such offerlngs ln lLs sLore
CovernmenL pollcles ln Lhe recenL budgeL Cordon 8rown announced a doubllng of Lhe Lhreshold
for sLamp duLy on house purchases Lo 120000 1hls was done Lo asslsL parLlcularly flrsL Llme
buyers Lncouraglng Lhe houslng markeL wlll have a beneflclal effecL on WoolworLhs house wares
furnlshlngs and ul? ranges buL Lhls wlll obvlously exLend Lo Lhelr compeLlLors as well
CovernmenL Lerm and change whllsL a Ceneral LlecLlon ls due ln Lhe uk Lhe wrlLer belleves LhaL
Lhere would be no slgnlflcanL lmpacL elLher poslLlve or negaLlve were Lhe pollLlcal parLy currenLly ln
power were Lo remaln or change
Lconomlc
Pome economy slLuaLlon Lhe currenL economlc slLuaLlon ln Lhe uk can be seen as a poslLlve facLor
for WoolworLhs wlLh low lnLeresL raLes (27) and hlgh properLy values leadlng Lo record levels of
borrowlng Powever Lhere are concerns over Lhe level of borrowlng as debL levels for have reached
more Lhan 1 Lrllllon (88C L) lL should also be noLed LhaL low lnLeresL raLes would dlssuade people
who are llvlng off lnvesLmenLs from spendlng alLhough Lhese Lend Lo be Lhose ln reLlremenL who
are noL consldered Lo be WoolworLhs LargeL consumer 1hey have ldenLlfled LhaL Lhelr Lyplcal
cusLomers are moLhers wlLh dependenL chlldren llvlng aL home (wwwwoolworLhsgroupplccom)
Pome economy Lrends 1he CovernmenL sLaLes LhaL Councll Lax wlll rlse by an average of 41 ln Lhe
nexL flnanclal year Lhe lowesL lncrease ln more Lhan Len years (88C 8) ln Lhe houslng markeL
flgures for changes ln house prlces vary by source wlLh Lhe Pallfax quoLlng a 03 rlse and Lhe
naLlonwlde a 03 fall (88C A 2003) 1here ls currenLly no solld evldence of a crash ln Lhe houslng
markeL Should Lhls occur Lhe lmpacL on Lhe whole reLall lndusLry would be lmmense?
Cverseas economles and Lrends oll prlces had rlsen Lo a hlgh of $3613 per barrel ln mldMarch
(88C l) AlLhough Lhey are currenLly falllng Lhey remaln 23 hlgher for Lhe year (88C l) Long Lerm
Lhe slLuaLlon ls llkely Lo worsen as demand for oll lncreases from growlng economles such as Chlna
where Lhe economy ls growlng aL 9 and a 10 lncrease ln oll use ls predlcLed for 2003 (88C l
2003) Plgh oll prlces wlll affecL boLh producLlon and dlsLrlbuLlon cosLs for all reLallers and wlll have
Lo be passed onLo Lhe consumer Lhrough lncreased prlces lf alLernaLlve savlngs cannoL be made ln
Lhe value chaln
MarkeL and Lrade cycles desplLe good economlc facLors such as low lnLeresL raLes Lhe uk reLall
economy seems Lo be slowlng down ln March Morrlson 8ooLs and !essop's puL ouL proflL warnlngs
and lL was reporLed LhaL daLa suggesLs generally poor reLall sales and weak spendlng for Lhe perlod
slnce ChrlsLmas (verdln 2003) 1he flgures polnL Lo a growLh ln consumer spendlng of only 02 for
Lhe lasL quarLer of 2004 Lhe weakesL flgure for almosL Lwo years (uuncan 2003)
no speclflc cause for Lhls downLurn has been ldenLlfled alLhough Lhe wrlLer would suggesL LhaL Lhe
publlclLy around levels of personal debL and Lhe worsenlng penslon crlsls may have some lnfluence
Soclal
Consumer aLLlLudes and oplnlons MlnLels annual llfesLyle reporL has found LhaL consumers are
shunnlng Lhe larger supermarkeLs and chaln sLores whlch Lhey flnd lmpersonal and are much more
llkely Lo frequenL local lndependenL shops (clLed ln 88C C) 1he lmpllcaLlons of Lhls for WoolworLh
could be poslLlve or negaLlve 1o many people Lhey may be classed as a mulLlslLe reLaller and
Lherefore avolded by Lhe consumer Powever Lhe hlsLory of Lhe company lLs generally hlgh sLreeL
locaLlons and Lhe naLure of Lhe producLs lL sells may lead some Lo choose lL as a shopplng venue
over large supermarkeLs ln Lhls area Lhe hlsLory and repuLaLlon of WoolworLhs can only be
beneflclal
lashlon and role models Lhe value of celebrlLy endorsemenL ls well undersLood by Lhe reLall
lndusLry and lcons such as !amle Cllver uella SmlLh and uavld 8eckham have all become assoclaLed
wlLh parLlcular brands WoolworLh ldenLlfled Lhls paLLern and adopLed Lhe puppeL characLers
Woolly and WorLh for Lhelr 2004 ChrlsLmas campalgn lLs success has encouraged Lhem Lo conLlnue
Lhe use of Lhese characLers for fuLure adverLlslng campalgns (wwwwoolworLhsgroupplscom)
1echnology Lhe raLe of lncrease ln use of cuLLlng edge Lechnology based lLems has glven reLallers a
hlghly lucraLlve new producL range lor example moblle phone Lechnology only became wldely
avallable ln Lhe early 1980s buL Loday approxlmaLely one ln slx of Lhe worlds populaLlon owns one
and ln mosL of Lhe developed counLrles markeL peneLraLlon exceeds 70 (1he LconomlsL 2003) As
well as Lhe phones Lhemselves Lhe assoclaLed hardware and sofLware are hlghly popular and
unexpecLed markeLs have developed for example rlng Lones 1here are no lndlcaLlons LhaL Lhese
producLs wlll do anyLhlng oLher Lhan malnLaln Lhelr growLh and Lhe conLlnual developmenLs ln
Lechnology help Lo keep Lhe markeL buoyanL
Consumer buylng mechanlsms/Lechnology Lhe growLh of ecommerce has provlded Lwo new
sLraLeglc dlrecLlons for reLallers llrsLly Lhere ls Lhe opporLunlLy of selllng Lhe Lechnology lLself
moblle phones personal compuLers sofLware downloads games and secondly lL provldes a
furLher channel Lhrough whlch Lo sell goods All Lhe ma[or reLallers have web slLes on whlch
cusLomers can research producLs compare prlces order and pay for goods and as such Lhere ls
reasonable compeLlLlon Lo encourage consumers Lo vlslL parLlcular web slLes An exLra dlmenslon ls
Lhe number of companles who sell only Lhrough Lhe lnLerneL 1hls provldes Lhem wlLh a compeLlLlve
advanLage of havlng lower overheads as premlses and shop floor sLaffs are noL requlred
A good example of Lhls ls Lhe book reLaller Amazoncom who has dlverslfled lnLo cloLhlng apparel
uvus and compacL dlscs followlng Lhelr success wlLh books lurLher channels have yeL Lo be fully
uLlllsed lncludlng orderlng goods Lhrough moblle phone Lechnology and dlglLal Lelevlslon shopplng
channels WhllsL bulldlng Lhelr ecommerce buslness WoolworLhs need Lo ensure lL ls based on a
sLable and secure foundaLlon AlLhough noL alone ln Lhe experlence Lhey had Lo close Lhelr
wwwwoollescouk slLe for Lwo monLhs ln 2000 when a cusLomer reporLed LhaL Lhey could vlew
oLher peoples credlL card deLalls on Lhe slLe (Azeez 2002)
MaLurlLy of Lechnology 8adlo lrequency ldenLlLy 1agglng (8llu) ls seen as Lhe way forward by
many reLallers who are underLaklng Lrlals of Lhe Lechnology 1he mosL wellknown ls probably 1escos
who have been LesLlng lL on Lhelr hlgh relaLlve value easlly porLable lLems such as razors
WoolworLh had been Lrlalllng sysLems buL has announced Lhls year LhaL Lhere ls no longer fundlng
for Lhe pro[ecL (wwwwoolworLhsgroupplccom) 1hey are allowlng Lhe Lechnology Lo reach maLurlLy
and should Lhen be able Lo caplLallse on Lhe research done by oLhers 1here are some rlsks wlLh Lhls
sLraLegy as lL glves Lhe compeLlLors Lhe opporLunlLy Lo reallse Lhe beneflLs of such Lechnology aL an
earller sLage Powever lL also proLecLs WoolworLhs from Lhe hlgh level of rlsk assoclaLed wlLh Lhls
Lechnology and deallng wlLh lssues ralsed by Lhe uaLa roLecLlon AcL
S18A1LClC C8Cu AnAL?SlS
1he compeLlLors of WoolworLh are deemed as belng
ulscounLers Lhose sLores whlch offer sLock aL parLlcularly low prlces and have Lhls as a unlque
selllng polnL 1hese would lnclude Wllklnsons AsdaWalMarL and oundsLreLcher
SupermarkeLs sLores LhaL hlsLorlcally sold predomlnanLly food lLems buL have now generally
expanded Lhelr range Lo lnclude subsLanLlal nonfood caLegorles Lxamples are 1esco Salnsbury
AsdaWalMarL and WalLrose
ueparLmenL sLores a sLore whlch sells a range of lLems usually nonfood LhaL dlvldes lLs goods lnLo
dlsLlncL areas of Lhe sLore ln Lhe uk Lhls caLegory lncludes MS uebenhams Pouse of lraser
8rlLlsh Pome SLores (8PS) and !ohn Lewls
CaLalogue sLores Lhe reLaller has a large proporLlon of Lhe sLore space dedlcaLed Lo sLorage raLher
Lhan selllng space lew lf any goods are on dlsplay and cusLomers selecL from a caLalogue usually
wlLhouL vlewlng Lhe producL flrsL Argos and nexL are Lhe mosL well known ln Lhe uk
SpeclallsL sLores Lhose who concenLraLe on selllng a parLlcular producL whlch corresponds Lo parL
of Lhe WoolworLh range lor example MoLhercare and Lhe Larly Learnlng CenLre for chlldrens
cloLhes 8C Pomebase and locus ul? for ul? producLs
CompeLlLlon ls hlgh for all segmenLs of Lhe reLall lndusLry whlch has led Lo a blurrlng of Lhe
dlfferences beLween Lhe caLegorles Many companles are dlverslfylng lnLo new secLors or almlng for
hlgher markeL peneLraLlon ln Lhelr exlsLlng producLs A good example are Lhe supermarkeLs whlch
have had many years of flerce compeLlLlon wlLh Lhe maln Lhree 1esco Salnsbury and Asda regularly
changlng places ln Lhe reLaller league 1helr sLraLegy lnvolves adopLlng a hybrld approach CosL
leadershlp Lo some degree by ensurlng Lhey malnLalned compeLlLlve prlclng for generlc producLs and
Lhen offerlng Lhelr own brands aL a slgnlflcanLly lower prlce and dlfferenLlaLlon ln Lerms of Lhe range
of producLs Lhey offer by branchlng ouL lnLo greaLer ranges of nonfood lLems new enLranLs Lo Lhe
markeL had Lo have a unlque selllng polnL Lo appeal Lo Lhe consumer and found lL ln Lerms of
ouLperformlng Lhe esLabllshed markeL ln cosL leadershlp Aldl neLLo and Lldl have achleved some
success ln Lhls provldlng generally unfamlllar brand named everyday producLs aL a slgnlflcanLly
lower prlce Lhan Lhe maln supermarkeLs
1he supermarkeLs also aLLempLed Lo lncrease Lhelr markeL share Lhrough lncreaslng Lhelr ranges of
producLs and lncreaslng Lhe slze of Lhelr sLores Lo lnclude supersLores and hypermarkeLs CLher
LacLlcs lnclude offerlng an appearance of belng more excluslve (such as WalLrose and Marks and
Spencer) poslLlonlng as a leader ln corporaLe soclal responslblllLy (as ln Lhe CoCperaLlve sLores and
Lhelr lalrLrade producLs) and seeklng new selllng opporLunlLles (for example Marks and Spencers
food ouLleLs ln servlce sLaLlons)
1he amalgamaLlon of Asda and WalMarL and Morrlsons and Safeway showed LhaL some of Lhese
sLraLegles lefL companles wlLh no clear cusLomer focus Lrylng Lo be all Lhlngs Lo all people and wlLh
decreaslng sales and markeL share Lhey became aLLracLlve proposlLlons Lo companles wlshlng Lo
achleve a fooLhold ln a new geographlcal locaLlon (Lhe souLh of Lngland ln Lhe case of Morrlsons and
Lhe whole of Lhe uk ln Lhe case of WalMarL)
1he blggesL LhreaL Lo WoolworLhs from Lhese sLores has been Lhrough producL dlverslflcaLlon
lnlLlally seeklng Lo offer a one sLop shop experlence wlLh selllng general merchandlse Lhey Lhen
Look on speclallsL sLores such as Lloyds pharmacles and nonreLallers wlLh Lhe offerlngs of flnanclal
servlces
1he speclallsL sLores have had Lo recognlse LhaL as well as compeLlng beLween Lhemselves where
producLs overlap Lhey now also have Lo Lake on Lhe supermarkeLs Muslc reLallers such as PMv and
vlrgln are experlenclng pressure from supermarkeLs who area able Lo Lake Lhem on ln Lerms of cosL
leadershlp due Lo economles of scale and value chaln efflclencles leavlng Lhe muslc sLores wlLh Lhe
only opLlon of maxlmlslng Lhelr nlche quallLles Powever Lhe lncreaslng popularlLy of ecommerce
boLh ln Lerms of new reLallers and lnnovaLlve producL formaLs (such as downloads) has puL Lhls
sLraLegy aL rlsk as Lhelr nlche sLaLus ls comlng under aLLack
1he lmpllcaLlons for WoolworLhs hlgh sLreeL sLores are LhaL Lhey are havlng Lo rely on appeallng Lo
cusLomers who are noL seeklng a speclflc lLem when Lhey enLer a sLore as Lhey cannoL compeLe on
grounds of prlce or speclallsm 1helr appeal ls Lo Lhe lmpulse purchaser or Lhose who are buylng for
someone else and are unsure of whaL Lhey wanL 1hls merges well wlLh Lhe WoolworLh sLraLegy of
concenLraLlng on klds and CelebraLlons Powever lf Lhey are poslLlonlng Lhemselves as a one sLop
shop provlder for celebraLlon evenLs Lhey are sLlll ln compeLlLlon wlLh Lhe supermarkeLs who are
able Lo provlde Lhe same lLems and Lhe opporLunlLy Lo purchase Lhem whllsL dolng Lhe regular
grocery shopplng
ln areas where WoolworLh has LradlLlonally been seen as a key provlder chlldrens cloLhes agaln
Lhe supermarkeLs are offerlng a cosL leader alLernaLlve wlLh a sLrong fashlon selllng polnL by
employlng wellknown deslgners Lo supporL Lhelr producLs (such as Ceorge aL Asda) 1esco recenLly
showed Lhelr power by offerlng Levls [eans aL a prlce polnL lower Lhan Lhe manufacLurer
Coupled wlLh Lhls ls Lhe sLraLegy of oLher companles Lo move lnLo Lhls llne as a new producL or Lo
lncrease Lhelr markeL share key players are MoLhercare and 1he Larly Learnlng CenLre Seen as
speclallsLs for Lhe chlld markeL Lhelr LhreaL Lo WoolworLh ls slgnlflcanL as ls LhaL of cloLhlng reLallers
ldenLlfylng Lhe markeL for chlldrens cloLhes and explolLlng lL uslng Lhelr sLrengLh ln repuLaLlon Lo
appeal Lo Lhe consumer (Cap klds for example)
WhllsL all Lhese forms of reLall ouLleL vle for Lhe consumers buslness Lhere ls an lnherenL rlsk for all
of Lhem ln Lerms of belng able Lo converL Lhelr sales lnLo proflL WlLh compeLlLlon belng so flerce and
comlng for several dlfferenL dlrecLlons mosL reLallers have Lo ensure LhaL whllsL Lhey are noL
necessarlly Lhe cheapesL Lhey are compeLlLlve
1he excepLlons Lo Lhls are Lhose LhaL promoLe Lhemselves as excluslve such as WalLrose All Lhese
reLallers are seeklng Lo reduce Lhelr cosLs Lhrough drlvlng savlngs wlLh Lhe value chaln 1hls has wlde
reachlng lmpllcaLlons As pressure lncreases Lo produce Lhe goods aL a lower cosL Lhe source of
producLlon moves Lo counLrles wlLh lower wages and poorer worklng condlLlons As well as affecLlng
Lhe uk economy Lhrough lncreased unemploymenL Lhere have been cases where Lhe apparenL
vlolaLlon of human rlghLs has produced poor publlclLy for Lhe reLaller An example of Lhls ls Lhe
slLuaLlon Marks and Spencer encounLered ln Lhe laLe 1990s
Cn Lhe one hand Lhey were belng accused of belng Loo expenslve so Lhey moved producLlon of Lhelr
cloLhes Lo developlng counLrles 1hls led Lo an ouLcry ln Lhe medla when companles ln Lhe uk who
had been supplylng Lhem for years could no longer operaLe and had Lo close down
AnoLher sLraLegy Lo reduce producLlon cosLs ls Lo use cheaper raw maLerlals buL agaln Lhe negaLlve
aspecLs of Lhls recelve aLLenLlon wlLh Lhe currenL example belng Lhe quesLlons ralsed over Lhe
nuLrlLlonal value of cheap food producLs
WlLhln Lhe organlsaLlons Lhemselves sLreamllnlng head offlce personnel ln Lerms of numbers and
ouLsourclng supporL funcLlons such as recrulLmenL have shown Lo be effecLlve ln Lhe shorL Lerm buL
Lhe longLerm effecLs of cuLLlng cosLs ln areas such as research and developmenL and Lralnlng has yeL
Lo be seen
SWC1 AnAL?SlS
SLrengLhs
Many of WoolworLhs sLrengLhs come from lLs long hlsLory 1hey have a recognlsed lnLernal
compeLence ln supply chaln managemenL and are able Lo use Lhls boLh Lo reduce Lhelr cosLs and Lo
enLer lnLo agreemenLs wlLh organlsaLlons LhaL would LradlLlonally be classed as Lhelr compeLlLors
such as 1esco 1hey are uslng Lhelr experLlse Lo provlde addlLlonal Lurnover 1helr conLracLs wlLh
oLher companles LhaL uLlllse Lhelr sLrengLhs also allow Lhem Lo mlnlmlse Lhe rlsks Lo Lhemselves
Pavlng been long esLabllshed WoolworLh has a good repuLaLlon ln Lhe uk and ls a recognlsed name
on Lhe hlgh sLreeL 1hey have a sLrong presence ln Loys house wares confecLlonary and seasonal
producLs markeLs and due Lo Lhelr slze can boasL a domlnanL poslLlon over Lhe ma[orlLy of Lhelr
suppllers
1he percepLlon of consumers ls of a hlgh level of corporaLe soclal responslblllLy havlng noL been
sub[ecLed Lo slgnlflcanL poor publlclLy ln any areas 1he general economlc condlLlons ln Lhe uk are
promlslng alLhough Lhe recenLly reporLed slow down ln consumer spendlng musL be regarded as a
rlsk 1he locaLlons and number of sLores operaLed by WoolworLhs can be seen as a furLher sLrengLh
especlally as consumer preference moves away from ouL of Lown shopplng 1hey have made a good
move ln Lhe adopLlon of adverLlslng lcons whlch are consldered Lo be a key elemenL of Lhelr
markeLlng campalgn 8ecenL lmprovemenLs ln Lhelr sLock managemenL sysLems lnvolvlng Lhe
lnLroducLlon of an lnLegraLed replenlshmenL sysLem and Lhe klngsLore Llll sysLems glves Lhem Lhe
ablllLy Lo manage Lhelr sLock levels more efflclenLly Lhereby reduclng boLh cosLs and lnsLances of
sLock ouLages
1hey have undergone a recenL revlew of how Lhey can lmprove Lhelr operaLlonal efflclency and Lhls
shows a proacLlve sLraLegy Lo Lake on Lhelr compeLlLlon 1hey have a hlgh level of undersLandlng of
cusLomer base whlch Lhey have developed Lhrough Lhelr long hlsLory ln Lhe reLall markeL 1hls
enables Lhem Lo predlcL changes ln consumer requlremenLs and glves Lhem Lhe poLenLlal Lo
malnLaln a compeLlLlve edge 1helr declslon Lo lncrease Lhelr use of Lhelr own brand producLs glves
Lhem Lhe opporLunlLy Lo helghLen Lhelr markeL peneLraLlon ln Lhese areas whllsL Lhelr expanslon of
elecLronlc enLerLalnmenL offerlngs shows a deslre Lo wlden Lhelr range wlLhln a speclflc secLor
1hese sLraLegles seem Lo be successful aL presenL 1hey are able and wllllng Lo adopL dlfferenL
sLraLegles for dlfferenL producL ranges meanlng LhaL Lhey can Lake on Lhe compeLlLlon ln a varleLy of
ways raLher Lhan dependlng on a slngle approach
Weaknesses
WoolworLhs pracLlce of dlscounLlng and offerlng deals aL hlgh levels provldes cusLomers wlLh power
whlch can force Lhe company Lo do Lhlngs lL would noL normally have Lo conslder such as exLendlng
Lhe number and lengLh of Lhree of Lwo offers AlLhough drlvlng sales Lhls can have a slgnlflcanL
lmpacL on Lhelr proflLablllLy lallure Lo keep up Lo speed wlLh compeLlLors ln new Lechnology such as
8llu could prove Lo be cosLly as Lhey wlll be unable Lo reallse Lhe flnanclal beneflLs aL Lhe early
sLage reduclng Lhelr ablllLy Lo compeLe ln value chaln reducLlons oor declslon maklng over Lhe
crlLlcal Lradlng Llme of ChrlsLmas led Lo dlsappolnLlng sales and poLenLlally a drop ln confldence of
consumers and lnvesLors WhllsL lL could be consldered LhaL Lhey would have learnL for Lhls
experlence lL suggesLs poor declslon maklng aL managemenL level whlch could posslbly be repeaLed
ln oLher areas 1he appearance of Lhelr sLores requlres aLLenLlon whlch lL ls recelvlng buL arguably
noL aL a fasL enough raLe CusLomer percepLlon of Lhelr offerlng ls of a low value producL whlch
alLhough synonymous wlLh value could be seen as a negaLlve facLor lf Lhey conLlnue wlLh Lhelr
poslLlonlng sLraLegy wlLh regard Lo klds and celebraLlons
CpporLunlLles
1here are several opporLunlLles avallable Lo WoolworLhs lurLher developmenL of Lhe elecLronlc
enLerLalnmenL offerlngs would seem Lo be a slgnlflcanL one of Lhese 1he secLor conLlnues Lo grow
and WoolworLh has esLabllshed Lhemselves aL an early sLage 1here ls poLenLlal ln forelgn markeLs
for WoolworLhs own brands such as Ladyblrd and Chad valley and ln Lhe domesLlc markeL Lhe
sLrengLh of Lhe houslng markeL ls leadlng Lo a hlgh level of purchases ln Lhe key areas of house
wares furnlshlngs and ul? 1he currenL consumer Lrend ls Lowards a preference for hlgh sLreeL reLall
ouLleLs as opposed Lo ouL of Lown supersLores and WoolworLh are well poslLloned Lo Lake advanLage
of Lhls LxLendlng channels for consumer purchase Lo make use of Lhe developmenLs ln Lechnology
such as moblle phones and dlglLal shopplng channels musL be consldered as a key opporLunlLy for
Lhe fuLure 1he currenL Apax Lakeover bld may provlde essenLlal fundlng for growLh for WoolworLh
enabllng Lhem Lo launch a slgnlflcanL aLLack on Lhelr compeLlLors
1hreaLs
Powever desplLe Lhe opporLunlLles avallable WoolworLhs reLall envlronmenL ls noL wlLhouL lLs
rlsks Plgh levels of compeLlLlon from wlLhln Lhe varleLy reLall secLor and from oLher secLors such as
dlscounLers caLegory klllers and caLaloguebased reLallers conLlnue Lo make Lhe markeL a dlfflculL
one Aggresslve compeLlLlon from supermarkeLs exLendlng Lhelr nonfood ranges and movlng lnLo
Lhe smaller scale convenlence shops ls a furLher cause for concern as ls Lhe recenL Lrend of a
decrease ln reLall sales Coupled wlLh Lhe lncrease ln oll prlces and demand for oll WoolworLh may
flnd lL dlfflculL Lo malnLaln a compeLlLlve prlclng sLraLegy and Lhe markeL saLuraLlon of Lhe hlgh
sLreeL reLall markeL means LhaL Lhey cannoL afford Lo become uncompeLlLlvely prlced 1he lncrease
of plracy wlll affecL Lhelr elecLronlc enLerLalnmenL sales unless lL can be combaLed and Lhey should
remaln aware of securlLy lssues over ecommerce WhllsL Lhe Lakeover bld from Apax as been
quoLed as an opporLunlLy lL ls also a LhreaL ln Lerms of Lhe poLenLlal loss of LalenL uurlng Llmes of
uncerLalnLy key employees may declde Lo seek alLernaLlve employmenL Laklng Lhelr lnLellecLual
caplLal wlLh Lhem
WhllsL on lnlLlal lnspecLlon WoolworLh would seem Lo have a larger number of sLrengLhs Lhan
weaknesses lL should be noLed LhaL lL ls Lhe naLure of Lhese areas LhaL ls mosL lmporLanL CuallLles
such as hlsLory and repuLaLlon would noL compensaLe for poor producL placemenL declslons aL
managemenL level
AS1 llvL ?LA8S Anu 8LCLn1 C8CW1P S18A1LClLS
WoolworLhs underwenL a radlcal revlew of lLs buslness ln 2002 and deLermlned LhaL Lhere were
four maln vehlcles Lo growlng proflLs 8y slmpllfylng Lhe buslness Lhrough reconslderlng Lhe
expanslon of Lhe WoolworLh Ceneral SLore and 8lgW concepLs Lhey have been ln a poslLlon Lo
reallgn and merge Lhe managemenL sLrucLures whlch were provlng Lo be a barrler Lo addlng Lo Lhe
value chaln and were also expenslve ln Lhemselves (wwwwoolworLhsgroupplccom) WoolworLh
ldenLlfled LhaL whllsL Lhe commerclal Leams for Lhese concepLs were concerned wlLh sourclng new
ranges lL had resulLed ln poor range consLrucLlon unsaLlsfacLory avallablllLy levels and a fallure Lo
maxlmlse Lhe buylng leverage of Lhe Malnchaln (wwwwoolworLhsgroupplccom)
WoolworLhs have sLrengLhen Lhelr lnfrasLrucLure Lhrough Lhe adopLlon of a new lnLegraLed lannlng
and 8eplenlshmenL SysLem whlch allows accuraLe managemenL of sLock levels Lo ensure nelLher Loo
much or Loo llLLle sLock ls held aL Lhe maln warehouses or Lhe sLores
(wwwwoolworLhsgroupplccom) Coupled wlLh Lhls Lhey have lnLroduced Lhe klngsLore Llll sysLem
wlLh beneflLs Lo boLh sLock holdlng accuracy and speed of servlce for cusLomers
(wwwwoolworLhsgroupplccom)
1helr sourclng and merchandlslng of goods has been lmproved Lhrough cenLrallsaLlon of buylng Lo
maxlmlse leverage a 10 reducLlon ln Lhe number of suppllers Lo reduce cosLs beLLer range
archlLecLures ln 1oys Pome and CloLhlng lncreased use of own brand producLs such as Ladyblrd
Chad valley and Colourplay (and) changes ln Lhe cloLhlng supply chaln Lo reduce lead Llmes lower
sLockholdlng and maxlmlse markdown esLabllshmenL of Lhe groups own buylng offlce based ln Pong
kong (wwwwoolworLhsgroupplccom)
1hey also recognlsed Lhe lmporLance of dellverlng a clearly undersLood dlfferenLlaLed reLall offer Lo
Lhelr cusLomers whlch depends upon havlng a clear undersLandlng of our cusLomer base
(wwwwoolworLhsgroupplccom)
uesplLe Lhese lmprovemenLs ln Lhe value chaln WoolworLh have noL been able Lo drlve Lhelr sales
flgures alLhough Lhey do reLaln markeL share
Cu88Ln1 MA8kL1 CSl1lCn
WoolworLh flnanclal resulL for 2004 showed a sales lncrease of 43 overall alLhough llkeforllke
sale for WoolworLhs maln chaln were down by 13 (woolworLhsgroupplccom) 1hls was converLed
lnLo 731 mllllon proflL an lncrease of 47 on Lhe prevlous year (wwwwoolworLhsgroupplccom)
and allowed Lhem Lo provlde 36 pence per share baslc earnlngs up 29
(wwwwoolworLhsgroupplccom) uurlng Lhe year Lhey had made subsLanLlal lnvesLmenL ln Lerms of
sLore refurblshmenL and Lhe lmplemenLaLlon of Lhe klngsLore Llll sysLem cosLlng a LoLal of 72
mllllon WhllsL llmlLlng new sLore openlngs Lo Lwo forLyelghL sLores were refurblshed
(wwwwoolworLhsgroupplccom)
2004 had seen Lhe creaLlon of Lhe [olnL venLure 2enLerLaln wlLh Lhe 88C Powever Lhe second half
of Lhe year was dlsappolnLlng wlLh ChrlsLmas noL produclng Lhe resulLs hoped for WoolworLh
declded Lo allocaLe exLra floor space Lo Loys and glfLs as early as CcLober ln Lhe hope LhaL Lhey would
Lake advanLage of early ChrlsLmas sales 1hls was unsuccessful and led Lo a loss of sale of oLher
producLs LhaL had been removed Lo make Lhe exLra floor space (wwwwoolworLhsgroupplccom)
WoolworLhs also had exLremely sLrong compeLlLlon for Lhe Loys and glfLs markeLs wlLh Argos
malnLalnlng Lhelr markeL leadlng poslLlon for anoLher year (wwwgusplccom)
WlLh Lhe reLall markeL reachlng saLuraLlon polnL and conLlnued negaLlve medla coverage of posslble
house prlce crashes penslon shorLfalls and personal debL Lhe lower amounL of dlsposable lncome
people are wllllng Lo spend ls belng spread LhaL much more Lhlnly Powever some reLallers have
been able Lo buck Lhls Lrend and WoolworLhs would beneflL from benchmarklng Lhemselves agalnsL
Lhe hlgh performers parLlcularly Lhose Lhey are ln dlrecL compeLlLlon wlLh such as Argos
WoolworLhs enLry lnLo Lhe enLerLalnmenL buslness became more focused followlng Lhe demerger
wlLh klngflshers ln 1991 and Lhey now operaLe Luk 2 LnLerLaln MvC and SLreeLs Cnllne whlch Lhe
wrlLer belleves are a key aspecL Lo Lhe company fuLure performance Luk was esLabllshed as a
brand ln Lhe mld1960s as 8ecord Merchandlsers LlmlLed and by 1986 wlLh WoolworLh as lLs
largesL cusLomer lL was acqulred by klngflsher
vldeo CollecLlon lnLernaLlonal (vCl) havlng been one of Lhe flrsL vldeo reLallers was boughL by
klngflshers ln 1998 MvC was founded as a [olnL venLure beLween klngflsher and former dlrecLors of
Cur rlce ln 1991 klngflsher Look over LoLal conLrol ln 1996 (wwwwoolworLhsgroupplccom)
When klngflsher and WoolworLhs demerged klngflsher plc Lransferred lLs lnLeresLs ln Lhe
underlylng general merchandlse buslnesses Lo WoolworLhs Croup plc ln saLlsfacLlon of a dlvldend ln
specle declared on klngflshers plcs ordlnary shares (wwwwoolworLhsgroupplccom)
Luk ls Lhe largesL wholesale dlsLrlbuLor of home enLerLalnmenL producLs ln 8rlLaln 2 LnLerLaln
operaLes as an audlovlsual publlshlng group and MvC ls a speclallsL hlgh sLreeL reLaller of
enLerLalnmenL producLs wlLh 83 sLores (wwwwoolworLhsgroupplccom) SLreeLs Cnllne one of Lhe
uks leadlng speclallsL onllne enLerLalnmenL reLallers was acqulred ln uecember 2000 Lo
complemenL Lhe MvC hlgh sLreeL sLore chaln
LnLerLalnmenL uk (Luk) showed a sLrong performance ln 2004 ralslng sales by 10 Lo 12 mllllon
(wwwwoolworLhsgroupplccom) 1he concepL ls based on enLerLalnmenL and books dlsLrlbuLlon and
has galned buslness ln lLs sales Lo Lhlrd parLles Pavlng acqulred conLracLs wlLh WP SmlLh and 1escos
for book dlsLrlbuLlon Lhlrd parLy sales now accounL for 384 of Lhe buslness
(wwwwoolworLhsgroupplccom) 1he sLraLegy for Lhe fuLure would seem Lo be based around
bulldlng Lhe Lhlrd parLy and ecommerce sldes of Lhe buslness whllsL conLlnulng Lo make efflclency
savlngs ln Lhe supply chaln whlch are essenLlal due Lo Lhe pressure on gross margln
As broadband access has become more wldespread across Lhe uk Lhe muslc and vldeo download
markeL has become a ma[or channel ln Lhe enLerLalnmenL markeL Ma[or players lnclude MSn
l1unes napsLer 1lscall and Wanadoo whllsL as a resulL of an aggresslve markeLlng campalgn Coca
Colas slLe Mycokemuslccom ls one of Lhe mosL successful download servlces ln Lurope (AuLhor
unknown !une 2004) Powever WoolworLhs have a dlfferenL offerlng Lo Lhese compeLlLors belng Lhe
only ma[or slLe Lo sell currenL charL muslc and Lo do so Lhrough a Wlndows Medla formaL raLher Lhan
a Lhrld parLy webslLe (AuLhor unknown !une 2004) 1hey have also negoLlaLed llcenslng deals wlLh
Lhe flve domlnanL record labels LMl Sony Muslc unlversal Muslc
8MC and Warner Muslc as well as several of Lhe lndependenL labels (Langford 2004) lL has been
suggesLed LhaL Apaxs bld ls dependenL on Lhe sale of 2LnLerLaln valued aL around 200 mllllon
(1elegraph 2003 8)
MvCs sLraLegy ls Lo dlsLlngulsh lLself from oLher speclallsL hlgh sLreeL enLerLalnmenL reLallers by
offerlng Lhrough mulLlchannels depLh of producL range lncludlng an exLenslve back caLalogue aL
compeLlLlve prlces (wwwwoolworLhsgroupplccom) 1hey see Lhelr cusLomer base as belng Lhe
frequenL hlghspendlng buyer of enLerLalnmenL producLs (wwwwoolworLhsgroupplccom)
Powever ln Lhe 2004 annual reporL lL was revealed LhaL Lhe company was unwllllng Lo commlL Lo
Lhe hlgh level of lnvesLmenL requlred for Lhe reposlLlonlng of MvC whlch had showed a 48 fall ln
llke for llke sales over Lhe prevlous year and LhaL afLer closlng fourLeen sLores Lhe remalnlng slxLy
seven would be dlvesLed
Cne of WoolworLhs key range ls Loys and games uesplLe publlclsng Lhe alm Lo be a markeL leader ln
Lhe uk for Loy sales Argos lead wlLh 40 of Lhe markeL WoolworLhs malnLaln second place wlLh
1oys 8 us Lhlrd (wwwwoolworLhsgroupplccom)
1he Loys and games markeL ln Lhe uk has seen a shlfL ln channels wlLh a decllne ln mall order due Lo
Lhe lncreased popularlLy of on llne shopplng and Lhe lncreased ranges held by supermarkeLs 1hls
has severely affecLed deparLmenL sLores wlLh boLh uebenhams and WP SmlLh reduclng Lhelr ranges
of Loys and games ln a re evaluaLlon of sLraLegy CaLegory klllers are becomlng more domlnanL as
well wlLh 1oys 8 us 1he LnLerLalner Creens and 1oy World provlng popular wlLh cusLomers
wlshlng Lo purchhse aL a specallsL ouLleL wlLh a correspondlngly wlder range of producLs and a
hlgher level of experLlse lurLher compeLlLlon ls expecLed ln Lhe area of pre school producLs wlLh
companles such as MoLhercare and Larly Learnlng CenLre concenLraLlng on exLendlng Lhelr markeL
share (8alnbrldge 2004)
WoolworLhs producL sLraLegy has varled beLween ranges lor Lhe klds and CelebraLlons sLraLegy
Lhe alm was Lo lncreaslng Lhe range of producLs avallable and resulLed ln lncreased sales for
LlecLrlcal CommunlcaLlons and klds uress up ranges lor ConfecLlonary ClfL and LvenLs Lhe
approach was concenLraLlng on dlfferenLlaLlng our offer from LhaL of Lhe compeLlLlon whllsL ln Lhe
CloLhlng secLor Lhe Lraded margln was moved forward as suppllers were managed Lo be able Lo reacL
Lo seasonal changes more qulckly (wwwwoolworLhsgroupplccom) WoolworLhs long Lerm alm
would seem Lo be Lo concenLraLe Lhelr hlgh sLreeL sLores on Lhe klds and CelebraLlons concepL 1hey
may have ldenLlfled Lhls as a markeL where currenL levels of demand are noL belng fllled
ln CcLober 2004 WoolworLh compleLed Lhe roll ouL of Lhe new klngsLore Llll sysLem 1hls allowed
beLLer conLrol of sLore sLock levels and an lncrease ln avallablllLy of lLems as well as fasLer
LransacLlon Llmes for cusLomers
Larly ln 2004 WoolworLh revlewed lLs 8lgW sLraLegy and declded LhaL Lhe concepL would be
downslzed boLh ln Lerms of number of sLores and sLore square meLerage 1hey vlew Lhe opLlmum
number of ouL of Lown slLes Lo be sevenLeen wlLh an average floor space of 40000 square feeL 8y
Lhe end of 2003 Lhey plan Lo have four sLores operaLlng whlch wlll be used Lo reflne Lhe proposlLlon
before any furLher lnvesLmenL ls made ln our oLher slLes
1hls declslon comes aL a Llme when research ls lndlcaLlng LhaL consumers have become dlslllusloned
wlLh Lhe ouL of Lown mega sLore concepL (SpecLor 2003) lL would be lnLeresLlng Lo know wheLher
Lhe managemenL aL WoolworLh wlLh Lhelr lnLernal compeLence of undersLandlng markeLs and
cusLomers predlcLed Lhls shlfL wheLher lL ls a response Lo Lhe flndlngs or wheLher lL was merely a
lucky colncldence
ln Lhe second half of 2004 WoolworLhs compleLed lLs purchase of lloglsLlcs a glfL voucher sale and
dlsLrlbuLlon company from klngflsher (wwwwoolworLhsgroupplccom) 1hls ls noL consldered by
Lhe wrlLer Lo be a ma[or change of sLraLeglc dlrecLlon buL more of a uLlllsaLlon of WoolworLhs
lnLernal compeLencles around warehouslng and dlsLrlbuLlon
lL ls noL [usL reLaller compeLlLlon LhaL presenLs a rlsk Lo WoolworLhs buslness 1he pracLlce of plracy
ls blamed for a dramaLlc drop ln uvu sales over Lhe ChrlsLmas perlod 1he CLC of WoolworLh uk
blamed repllcaLlon planLs ln Chlna pumplng ouL counLerfelL (clLed ln auLhor unknown 2203) as Lhe
reason behlnd dlsappolnLlng sales of Parry oLLer Shrek 2 and Splderman 2 lL would be lnLeresLlng
Lo know whaL lf any acLlons are belng consldered by Lhe ma[or reLallers Lo counLeracL Lhls problem
as reduclng Lhe lncldenLs would be equally aLLracLlve Lo Lhe suppllers as Lhe reLallers
ln Lerms of lndusLry llfe cycle Lhe reLall buslness as a whole ls sLlll ln Lhe growLh sLage new enLranLs
are conLlnulng Lo emerge and Lhe supermarkeLs have ldenLlfled Lhe nonfood secLor of Lhelr
buslnesses as a fuLure growLh area 1here are no obvlous slgns LhaL maLurlLy has been reached
alLhough Lhls may become Lhe case should reLall spendlng conLlnue Lo decllne

vALuL CPAln
Campbell eL al summarlse Lhe value chaln analysls under four areas ldenLlflcaLlon of core acLlvlLles
and Lhelr relaLlonshlps Lo core compeLencles and currenL organlsaLlonal sLraLegles ldenLlflcaLlon of
Lhe effecLlveness and efflclency of Lhe lndlvldual acLlvlLles examlnaLlon of llnkages beLween
acLlvlLles for addlLlonal added value and ldenLlflcaLlon of blockages whlch reduce Lhe organlsaLlons
compeLlLlve advanLage (Campbell eL al 1999 pp 33) orLer saw Lhe posslbllLles of applylng Lhls Lo
sLarLeglc analysls ln Lerms of llnklng Lhe added value LhaL each parL of Lhe organlsaLlon conLrlbuLes
Lo Lhe whole organlsaLlon and Lhe conLrlbuLlon Lo Lhe compeLlLlve advanLage of Lhe whole
organlsaLlon LhaL each of Lhese parLs mlghL Lhen make (orLer clLed ln Lynch pp 216 2003)
As prevlously menLloned WoolworLh underLook a deLalled revlew of Lhelr operaLlon ln 2002 Lo
ldenLlfy where value chaln lmprovemenLs could be achleved 1he wrlLer conslders lL unllkely LhaL
WoolworLh saw Lhls as a sLraLegy wlLh a speclfled end polnL and would expecL Lhem Lo conLlnually
revlew Lhls area as an ongolng proflL generaLor 1he sLaLe of Lhe supporL acLlvlLles ls seen by Lhe
wrlLer as belng as follows Pavlng esLabllshed a flrm lnfrasLrucLure Lhrough relnLegraLlng Lhe 8lgW
and WoolworLhs Ceneral SLores producL sourclng arm lnLo Lhe malnchaln funcLlon Lhey are able Lo
maxlmlse Lhelr power over Lhelr suppllers 1he procuremenL deparLmenL ls able Lo negoLlaLe wlLh
suppllers wlLh efflclencles of bulk and wlLh a sLrong knowledge of sLockholdlng requlremenLs
followlng Lhe lnLroducLlon of Lhe replenlshmenL sysLem and klngsLore Lllls
8elng able Lo accuraLley forecasL sales of a producL reduces Lhe lnsLances of belng lefL wlLh exLra
sLock Lo be [obbed off ensure maxlmlsaLlon of sales wlLh reduced problems of sLock ouLages allows
for long range plannlng of warehouslng and dlsLrlbuLlon requlremenLs and provldes a foundaLlon
from whlch Lo be able Lo glve Lhe suppller confldence ln Lhe orderlng levels whlch allows Lhem Lo
Lake slmllar advanLages Puman resources managemenL ls a key area of any buslness 8y ensurlng
close managemenL of areas such as Lralnlng and developmenL recrulLmenL and reward pollcles
WoolworLhs are able Lo malnLaln conLrol of cosLs
1he recenL emergence of Lhe psychologlcal conLracL Lo replace Lhe concepL of a [ob for llfe has puL
pressure on employers Lo offer Lhelr employees more Lhan [usL a days pay for a days work
Lmployees are seeklng opporLunlLles for developmenL and reward sLraLegles LhaL glve Lhem Lhe
opLlon of lnvesLlng ln Lhelr employer Lhrough share save schemes 1he low unemploymenL raLes ln
Lhe uk places WoolworLhs and lLs compeLLors ln a dlfflculL slLuaLlon havlng Lo balance Lhe spendlng
on employee beneflLs agalnsL Lhe pressure of Lrylng Lo aLracL Lhe besL candldaLes WoolworLh offers
a graduaLe recrulLmenL scheme Lo aLLracL whaL Lhey se as Lhe managers of Lhe fuLure
1echnologlcal developmenL has been reduced as a dlrecL resulL of cosL savlng lnLlaLlves ln Lerms of
Lhe 8llu research and Lhere ls llLLle eveldence of any lnvesLmenL ln Lerms of Lhe alLernaLlve
shopplng channels Agaln whllsL maklng savlngs ln Lhe value chaln Lhere ls an assoclaLed rlsk of
falllng behlnd Lhe compeLlLlon and loslng markeL share as well as long Lerm flnanclal beneflLs
WoolworLhs concenLraLes lLs warehouslng operaLlons aL one slLe ln Swlndon and complemenLs Lhls
wlLh smaller saLelllLe operaLlons on a reglonal basls 1hls glves Lhem some advanLages ln Lerms of
mlnlmlslng lnvesLmenLs ln sLorage faclllLles and reduclng double handllng beLween slLes buL puLs
Lhem aL rlsk of needlng Lemporary exLra faclllLles aL peak Lradlng Llmes Lhe perlod when such
faclllLles are aL Lhe hlghesL prlce Pavlng a sLrucLure of Lhree of four large reglonal dlsLrlbuLlon
faclllLles can be seen as Lhe mosL effecLlve meLhod as lL allows for sufflclenL expanslon when
requlred and unneeded space could be subleL aL quleLer Llmes WoolworLh are also lncreaslng Lhe
pracLlce of suppllers dellverlng dlrecLly Lo Lhe sLores (wwwwoolworLhsgroupplccom) whlch reduces
Lhe dlsLrlbuLlon cosLs slgnlflcanLly
1here has been llLLle change ln Lhe area of cusLomer servlce for WoolworLhs ln Lhe recenL pasL
conLlnulng Lo rely on whaL are now consldered Lo be Lhe more LradlLlonal sysLems wlLhln Lhelr hlgh
sLreeL sLores 1hey have lnvesLed ln Lhe klngsLore Llll sysLem buL are noL yeL able Lo offer auLomaLed
credlL card sysLems ln sLore value ls posslbly belng added Lhrough Lhls sLraLegy as Lhey do noL have
Lo lnvesL ln new Lechnology or by lnnovaLlve cusLomer servlce meLhods however Lhese are ofLen
vlewed by cusLomers as a source of compeLlLlve advanLage
1he operaLlonal sLrucLure of WoolworLh has been lnLegraLed as prevlously menLloned by
amalgamaLlng Lhe 8lgW and WoolworLh Ceneral SLores procuremenL funcLlons lnLo Lhe maln
buslness and also Lhrough consolldaLlng Lhe Local and ClLy formaLs (wwwwoolworLhsgroupplccom)
1hls cenLrallsed sLrucLure enables Lhe company Lo maxlmlse value chaln acLlvlLles ln an upsLream
dlrecLlon le ln areas such as purchaslng dlsLrlbuLlon and cusLomer servlce buL may llmlL Lhelr
ablllLles Lo do Lhe same ln a downsLream dlrecLlon le lnnovaLlon producL developmenL and
markeLlng (Lynch 2003)
Chosh (1998) noLed LhaL Lhe growLh of ecommerce allowed four furLher meLhods of addlng value
offerlng exLra low cosL servlces Lo cusLomers sharlng cusLomers wlLh oLher buslnesses uLlllslng
lnLernal compeLencles ln lnformaLlon Lechnology Lo provlde cusLomer servlce and leveraglng Lhe
ablllLy Lo LransacL over Lhe lnLerneL Lo provlde more value Lhan oLhers
WoolworLh may conslder revlewlng Lhese speclflc areas of Lhe value chaln ln Lhe fuLure as e
commerce becomes a more and more slgnlflcanL reLalllng channel
Cu88Ln1 SCu8CLS Cl CCML1l1lvL AuvAn1ACL
Several of WoolworLhs compeLlLlve advanLages have already been dlscussed buL Lwo are seen Lo be
parLlcularly slgnlflcanL WoolworLhs has a group of lnsLore brands lncludlng Ladyblrd Closs and
Chad valley for whlch Lhey have excluslve rlghLs 1he Ladyblrd brand caLers for Lhe chlldrens
cloLhlng markeL for ages 0 9 years lL ls Lhlrd ln Lhe chlldrens wear markeL wlLh a markeL share of
3Closs ls poslLloned Lo plck up Lhe Ladyblrd consumers as Lhey become older Lhrough offerlng
fashlonable cloLhes aL a low prlce polnL Lo Lhe 7 11 female age group Chad valley ls a well
esLabllshed range of Loys launched ln 1991 alLhough Lhe name had been ln exlsLence slnce 1860
1radlng under Lhe banner of safe low prlced Loys for chlldren from blrLh Lo 8 years old lL has
become one of WoolworLhs mosL recognlsed offerlngs (wwwwoolworLhsgroupplccom)
WoolworLh ls well poslLloned Lo beneflL from Lhe Lrend away from large supermarkeLs Many of Lhe
ma[or reLallers such as 1esco are openlng more small scale ouLleLs almed aL provldlng for Lhe
consumers who have become dlslllusloned wlLh drlvlng Lo ouL of Lown slLes and shopplng ln large
busy supersLores whlch Lhey flnd Lo be Llme consumlng Lhe Lrend ls Lowards smaller ouLleLs whlch
as seen as qulcker and more convenlenL Lo Lhe shopper WoolworLhs upLake on Lhls has been seen
Lhrough lLs declslon Lo scale back on Lhe 8lgW concepL and whaL was prevlously seen as a rlsk Lo Lhe
buslness malnLalnlng hlgh sLreeL locaLlons raLher Lhen move ln shopplng cenLres should pay
dlvldends ln Lhe fuLure (SpecLor 2003)
CC8L CCML1LnClLS
WoolworLhs were unable Lo counLeracL Lhe compeLlLlon from speclallsL caLegory klllers and
dlscounLers because Lhey lacked Lhe range of capablllLles and undersLandlng of Lhe markeLs Lo be
able Lo challenge Lhem once Lhey had become esLabllshed (laulkner eL al 2003) 1hey do however
possess several slgnlflcanL core compeLencles some of whlch are hlsLorlc oLhers whlch are more
recenL ln Lhelr developmenL
WoolworLhs push for sales over Lhe ChrlsLmas perlod led Lo Lhe declslon Lo adopL an lconlc approach
Lo adverLlslng wlLh Lhe lnLroducLlon of Wooly and WorLh sheep and sheepdog puppeLs 1hls
approach ls seen as a solld one ln Lhe currenL adverLlslng cllmaLe wlLh for example Lhe !amle
Cllver/Salnsburys connecLlon 1hls approach glves Lhe consumer a recognlsable lcon wlLh whom
Lhey assoclaLe a company Lo Lhe sLage where Lhe assoclaLlon Lakes place wlLhouL menLlon of Lhe
brand
WoolworLh say Lhey wlll conLlnue Lo use Lhe puppeLs as Lhey proved successful by belng
remembered by Lhe publlc and WoolworLhs have now developed a range of merchandlse based on
Lhe characLers (wwwwoolworLhsgroupplccom)
WoolworLh's sLrengLhs lle malnly ln lLs hlsLory and repuLaLlon Pavlng become lnLernaLlonal as early
as Lhe 1920s WoolworLhs bullL and malnLalned a hlgh level of knowledge around Lhe naLure of
markeLs 1helr poslLlon as a household name also helped Lhem become a hlghly regarded employer
parLlcularly ln Lhe mld20Lh CenLury and Lhe company sLlll beneflLs from havlng a core of dedlcaLed
employees Powever Lhe wrlLer belleves lL also suffered from ouLdaLed supporL sysLems and a Llred
appearance Lo lLs sLores
WoolworLhs has developed experLlse ln Lhe supply chaln area of Lhe buslness over Lhe years as seen
wlLh lLs [olnL venLures offerlng dlsLrlbuLlon experlence Cne of Lhe maln changes ln Lhe supply chaln
over Lhe nexL few years wlll be Lhe lnLroducLlon of 8adlo lrequency ldenLlLy 1agglng Marklng Lhe
lndlvldual sLock lLems (usually Lhrough Lhe use of a barcode) allows Lhem Lo be Lracked from
producLlon Lo consumpLlon allowlng boLh more efflclenL lnvenLory conLrol and lnslghLs lnLo
consumer hablLs
WoolworLh began research lnLo 8llu slnce 2002 buL ln 2004 announced LhaL lL would puL Lhe Lrlals
on hold WoolworLhs head of cenLral loglsLlcs Ceoff Cnelll ls quoLed as saylng 8llu ls parL of our
supply chaln sLraLegy for Lhe fuLure We wlll geL around Lo lL and Lhe Lechnology wlll be even beLLer
Lhen A Lwo Lo Lhree year walL may noL be a bad Lhlng (clLed ln WaLson 2004) Pe clalmed LhaL Lhe
declslon was due Lo Lhe facL LhaL our chlef execuLlve has declded Lo prlorlLlse oLher Lhlngs rlghL now
(clLed ln WaLson 2004) lL remalns Lo be seen how Lhls declslon wlll lmpacL WoolworLhs capablllLles
ln Lhe fuLure as many of lLs compeLlLors are conLlnulng wlLh Lhelr Lrlals and plan Lo have 8llu
sysLems ln place by 2007 (WaLson 2004)
1PL lu1u8L
WoolworLhs have had Lhree successlve years of lmprovlng Lhe operaLlonal efflclency of Lhe
organlsaLlon Cross margln has lmproved by 90 base polnLs of Lhe lasL Lwo years achleved Lhrough
beLLer sourclng producL developmenL and conLlnuous lmprovemenL Lo Lhe ranges
(wwwwoolworLhsgroupplccom)
WoolworLh ls faclng many of Lhe common challenges for Lodays reLallers 1he varleLy sLore markeL
ls saLuraLed leadlng Lo lnLense lnLernal compeLlLlon as well as Lhe LhreaL of lncreaslng dlscounL
sLores and speclallsL reLallers lurLhermore Lhe sLraLegy of Lhe large supermarkeLs Lo lncrease Lhelr
share of Lhe nonfood markeL ls provlng very successful and wlLh Lhelr power over Lhelr suppllers
and Lhe slze of Lhelr ouLleLs Lhey are able Lo offer elecLronlcs cloLhes and enLerLalnmenL lLems LhaL
were prevlously Lhe malnsLay of Lhe varleLy reLaller 1hls has led many companles Lo become
overexLended wlLh lnconslsLenL flnanclal resulLs and rapld LranslLlon Lhrough Lhe reLall llfecycle
leadlng Lo Lhem reachlng Lhe maLurlLy sLage earller and havlng Lo relnvenL Lhemselves more ofLen
CrowLh sLraLegles have Lo change dlrecLlon Lo asseL lnLenslflcaLlon or lnnovaLlon LxlsLlng producL
ranges sLores and cusLomers need Lo be maxlmlsed so measures such as fooLfall spend per baskeL
and numbers of lLems become key lndlcaLors 1o Lake on Lhe dynamlc secLors such as Lhe lelsure
healLhcare and moblle phones maLure reLallers need Lo Lake full advanLage of Lhelr economles of
scale Lo be able Lo drlve down prlces Lhrough lmprovlng Lhelr lnfrasLrucLure supply chaln and
markeLlng
Many of Lhe organlsaLlons whlch are ouLperformlng Lhelr compeLlLors ln Lerms of revenue and
proflLs are dolng so Lhrough opLlmlslng Lhe opporLunlLles LhaL are avallable Lo Lhem Common
sLraLegles lnclude focusslng on Lhe homerelaLed caLegorles whlch are popular aL a Llme when Lhe
houslng markeL ls sLrong demonsLraLlng a sLrong commlLmenL Lo added value and LargeLlng Lhe
groups wlLh hlgher levels of dlsposable lncome (Lhose who do noL yeL have a morLgage and Lhose
who have compleLed paylng Lhelr morLgage) (Chowdhury 2000)
lL has been menLloned ln Lhe lnlLlal parL of Lhls paper LhaL Lhe consLralnLs on WoolworLhs ablllLy Lo
reesLabllsh lLself as a markeL leader are lLs llmlLed capablllLles and lack of appreclaLlon of Lhe
poLenLlallLy of new markeLs (laulkner eL al 2003) laulkner eL al see a lack of opLlons as a
fundamenLal barrler Lo reLall success and commenL LhaL lL ls necessary for a company Lo malnLaln a
porLfollo of new opLlons for lLs fuLure by bulldlng new capablllLles and slmulLaneously expandlng lLs
knowledge of new markeL segmenLs and cusLomer behavlour (laulkner eL al pp 283)
1hey go on Lo suggesL Lhree speclflc forms of opLlons a new concepL LhaL ls yeL unLesLed a concepL
LhaL has undergone llmlLed Lrlals and lasLly a sLandalone buslness LhaL has remalned undeveloped
(laulkner eL al 2003) WoolworLhs has been able Lo exerclse one of Lhese opLlons ln Lhe pasL when lL
Look Lhe plloL concepL LhaL was looL Locker and Lurn lL lnLo Lhe domlnanL core of Lhelr buslness ln
Lhe uSA 1hey may be LempLed Lo do Lhls agaln posslbly ln Lhe uk markeL wlLh lLs aL presenL
fledgllng concepLs such as 2LnLerLaln 1here are deflnlLe beneflLs Lo Lhls approach as lL would noL
requlre Lhe large lnvesLmenL needed Lo develop every opLlon avallable Lo Lhem buL due Lo a sLrong
lnlLlal fooLhold ln Lhe secLor lL could be qulckly scaled up
laulkner eL al see a sLrong beneflL ln malnLalnlng a range of opLlons aL dlfferlng levels of
developmenL (laulkner eL al 2003) lf an organlsaLlon ls able Lo respond Lo a developmenL ln Lhe
reLall markeL LhaL ls growlng slgnlflcanLly by expandlng an already Lrled and LesLed concepL Lhe
organlsaLlon wlll have Lhe requlred compeLencles Lo maxlmlse Lhelr share of LhaL parLlcular markeL
before Lhelr poLenLlal compeLlLors have had Lhe Llme and been able Lo make Lhe lnvesLmenL ln
developlng Lhe concepL from scraLch 1hls would suggesL LhaL WoolworLh should conLlnue Lo Lrlal
new concepLs Lo be able Lo develop Lhem fully when Lhe markeL condlLlons are rlghL
Pavlng ln depLh lnLernal knowledge around markeLs and consumers ls noL enough for an
organlsaLlon Lo be successful Lhey also need Lo be able Lo uLlllse Lhls knowledge by belng able Lo
apply lL aL some sLage of Lhe value chaln ln lLs slmplesL Lerms lL ls noL sufflclenL for an organlsaLlon
Lo have ln depLh knowledge of Lhe poLenLlal sLock markeL for example ln Lhe uk lf Lhey have no
way of sourclng dlsLrlbuLlng or selllng Lhem
WoolworLhs sLraLegy ln Lhe pasL has been dlverslflcaLlon around relaLed brands le speclallslng ln
producLs LhaL had been avallable ln Lhelr sLores such as muslc and vldeos or shoes and selllng Lhem
Lhrough boLh relaLed and dlverslfled channels such as was done ln Lhe uS wlLh looLlocker or Lhe
case of muslc downloads Lo complemenL compacL dlscs 1hls approach requlres consLanL research
lnLo markeLs and consumers as well as Lhe ablllLy Lo lmplemenL whaL Lhey learn
verdlcL analysL nlck Claddlng quoLed ln markeLlng magazlne hlghllghLs Lhe facL LhaL reLallers such
as WoolworLh and WP SmlLh had prevlously relled on locaLlon as a unlque Selllng olnL and LhaL Lhls
advanLage has now been losL Pe suggesLs LhaL boLh companles should focus on Lhelr areas of
experLlse WP SmlLhs should be educaLlon and WoolworLhs should concenLraLe on klds and
celebraLlons (clLed by 8arnes 2003)
Claddlng also belleves LhaL prlce ls Lhe decldlng facLor for Lhe consumer who has many cholces of
reLaller ln an already saLuraLed hlgh sLreeL markeL and wlLh Lhe plans of 1esco Lo open nonfood
general sLores Pe suggesLs LhaL WoolworLhs and WP SmlLhs sLraLegy Lo counLer Lhls should be a
merger beLween Lhem and polnLs Lo Lhe success of Lhe merger beLween 8lrLhdays and CllnLons
Cards (clLed ln 8arnes 2003)
WoolworLhs needs Lo focus on Lhree areas for Lhe fuLure
llrsLly Lhere ls Lhe ever presenL need Lo ldenLlfy gaps ln Lhe markeL and Lo flll Lhem 1hls requlres
lnLernal compeLencles of lnnovaLlon and Lhe ablllLy Lo dellver as well as a wllllngness Lo accepL rlsk
Secondly Lhey need Lo revlew Lhelr range Lo ldenLlfy Lhose producLs whlch do noL have a longLerm
growLh poLenLlal and ellmlnaLe Lhem from Lhelr sLores 1hlrdly Lhey need Lo assess Lhelr own
lnLernal sysLems culLure leadershlp and buslness models Lo ensure LhaL none of Lhese are poslng
barrlers Lo furLher growLh
1he markeL wlLhln whlch WoolworLhs operaLes ls a healLhy one WlLh homeownershlp belng aL an
allLlme hlgh and lnLeresL raLes sLaylng sLable over an exLended perlod consumers have Lhe
confldence Lo spend raLher Lhan save CredlL levels are aL a hlgh and homeowners regard Lhelr
properLles as flnanclal asseLs due Lo Lhe lncreaslng poslLlve equlLy and as such are keen Lo lnvesL ln
Lhem ln Lerms of redecoraLlon refurnlshlng and remodelllng All Lhese are areas ln whlch WoolworLh
offers producLs Powever Lhere are challenges wlLhln Lhls plcLure Cll prlces conLlnue Lo rlse and seL
new record levels on a regular basls CompeLlLlon ls comlng from new sources such as caLalogue and
on llne reLallers as well as from Lhe supermarkeL chalns
1he Loys and games markeL one of WoolworLhs malnsLays ls llkely Lo have a dlfflculL fuLure WlLh a
decllnlng cusLomer base due Lo a fall ln Lhe blrLh raLe from 1998 and 2004 and chlldren becomlng
more maLure ln Lhelr purchase preferences aL an earller age Lhe pressure ls on reLallers Lo reduce
prlces and exLenL dlscounL volumes beyond Lhe normal ChrlsLmas perlod Powever MlnLel belleve
LhaL overall WoolworLhs and Lhe supermarkeLs are Lhe Lwo maln areas LhaL wlll galn from Lhe 14
lncrease ln sales LhaL Lhey forecasL (clLed ln 8alnbrldge 2004)
WoolworLhs currenL sLraLegy ls one of lncreaslng channels close managemenL of producL ranges
and sharlng of experLlse ln [olnL venLures
AAx
Apax arLners are a venLure caplLal flrm who speclallse ln reLall and consumer lnformaLlon
Lechnology flnanclal servlce medla Lelecoms and healLhcare 1hey lnvesL ln boLh esLabllshed and
blossomlng companles LhaL Lhey conslder Lo be aLLracLlvely prlced aL Lhelr sLage of Lhe sLock markeL
cycles (wwwapaxcom)
Apax arLners sLaLed sLraLegy ls Lo pursue a balanced prlvaLe equlLy porLfollo and Lhelr lnvesLmenLs
have ranged from a few mllllon Lo several bllllon pounds (wwwapaxcom)
Apax arLners clalm LhaL Lhelr sLrengLh lles ln lnvesLlng ln Lhe leveraged acqulslLlon of large
buslnesses Lyplcally managemenL buyouLs buylns and recaplLallsaLlons (wwwapaxcom) and LhaL
Lhelr alms are Lo lnvesL ln companles or groups LhaL have sLrong esLabllshed markeL poslLlons and
Lhe poLenLlal Lo expand lnLo new markeLs (wwwapaxcom) 1hls ralses Lhe quesLlon around Lhelr
lnLeresL and plans around WoolworLh and how Lhey see Lhe company flLLlng lnLo Lhelr already
exLenslve porLfollo whlch lncludes companles such as Amerlca Cn Llne (ACL) CompuLacenLer lc
easyLveryLhlng locus Wlcks Croup Merlln LnLerLalnmenL Muslc MarkeL new Look Croup Spear
and !ackson SLead and Slmpson and WaLersLones (wwwapaxcom)
Cenerally venLure caplLallsLs are vlewed negaLlvely 1hey are frequenLly accused of asseL sLrlpplng
when underLaklng buyouLs and are seen Lo be wholly money moLlvaLed uurlng a buy ouL aLLempL
employees ofLen lose confldence ln Lhelr fuLure employmenL and may leave Lhe company raLher
Lhan walLlng Lo see whaL happens 1hls can resulL ln a LalenL draln and can add a lack of foundaLlon
when senlor managemenL leave ln addlLlon Lo Lhe uncerLalnLy caused by Lhe buy ouL
ln Lhelr defence venLure caplLallsLs would clalm LhaL Lhelr role ls Lo make a golng concern from a
buslness LhaL ls sLruggllng or cannoL afford Lo make Lhe nexL sLeps needed for success 8y uslng
caplLal ralsed from banks or prlvaLe lndlvlduals (ln Apaxs case lL ls wholly from banks) Lhey can
provlde Lhe necessary resources Lo allow an organlsaLlon Lo Lake full advanLage of Lhelr own
sLrengLhs venLure caplLallsLs are generally know for lnvesLlng ln small young buslnesses buL Lhey
wlll also lnvesL ln larger more maLure companles such as WoolworLh 1hey would expecL Lhelr
lnvesLmenL Lo yleld a slgnlflcanL share of Lhe companles equlLy ln Lhe medlum or long Lerm
ln addlLlon Lo provldlng flnance Apax may well be seeklng a nonexecuLlve board poslLlon from
whlch Lo offer consulLancy Lype servlces lL has been reporLed LhaL Apax have already recrulLed boLh
Lhe former chalrman and chlef execuLlve of uyas Lo Lake over Lhe runnlng of WoolworLhs and LhaL ls
undeclded as Lo wheLher WoolworLhs currenL chlef execuLlve 1revor 8lsh!ones wlll be reLalned
(1elegraph 2003 C) 1he 8rlLlsh venLure CaplLal AssoclaLlon sLaLes LhaL around half of all venLure
caplLal flnanclng lnlLlaLlves are deslgned Lo enable Lo recelvlng company Lo expand (Mackle eL al
2004)
ln pracLlce whllsL many well known companles ln exlsLence Loday recelved venLure caplLallsL
supporL ln Lhelr early years success ls noL guaranLeed and lL usually depends on Lhe quallLy of advlce
offered Lo Lhe organlsaLlon 1he 8rlLlsh venLure CaplLal AssoclaLlon reporLs LhaL hlLech and e
commerce companles aLLracL Lhe ma[orlLy of venLure caplLal lnvesLmenLs alLhough Lhey do noL say
wheLher Lhls ls because of Lhelr llkellness Lo succeed or because Lhelr need ls greaLesL (Mackle eL al
2004) Apax musL have confldence ln WoolworLh Lo make Lhe lnlLlal offer whlch was lncreased
havlng lnlLlally been re[ecLed rlvaLe lnvesLors seem Lo share Lhls confldence as when Lhe share
prlce dropped as Lhe resulL of a proflL warnlng early ln 2003 boLh CarLmore and lnvesLec Look
advanLage of Lhe low prlce and boughL subsLanLlal amounLs of shares (uavles 2003)
AnSCllS MA18lx AnAL?SlS
Pls model glves organlsaLlon flve sLraLeglc buslness opLlons

1 MarkeL eneLraLlon generally seen as Lhe easlesL sLraLegy Lo adopL lncreaslng markeL
peneLraLlon lnvolves lncreaslng Lhe sales of exlsLlng producLs and galnlng furLher share of Lhe markeL
Lhrough aggresslve promoLlons or prlce reducLlons Lo lncrease sales lf cusLomer percepLlon of
WoolworLhs ls currenLly of a low value producL reLaller lL would be dlfflculL and dangerous for Lhem
Lo Lake on Lhe dlscounLers by lowerlng Lhelr cosLs even furLher unless Lhey could offseL lL wlLh lower
cosLs Lo Lhemselves Lhrough Lhe value chaln WoolworLh already adopL an aggresslve promoLlonal
campalgn wlLh lLs Lhree for Lwo Loy offers 1hls selllng polnL has now become expecLed by Lhe
consumer and Lo lnLroduce offers on more of Lhelr ranges or even beLLer offers would agaln be a
brave and posslble foollsh move
lL ls noL LhoughL LhaL Lhe markeL peneLraLlon approach would be a sulLable sLraLegy for WoolworLhs
unless Lhe Apax Leam provldlng Lhe deal goes Lhrough are prepared for Lhe shorL Lo medlum Lerm
loss of proflL LhaL ls bound Lo accompany lL 1he same would noL be Lhe case for Lhe enLerLalnmenL
markeLs caLered for by Luk 2 LnLerLaln MvC and SLreeLs Cnllne areas of Lhe buslness where Lhe
markeL ls sLlll lmmaLure and far from saLuraLlon polnL lurLher developmenL of Lhese buslnesses
would be recommended by Lhe wrlLer as a vlable sLraLegy for Lhe fuLure
An alLernaLlve would be Lo concenLraLe on peneLraLlon by lnLroduclng speclallsL sLores for some of
Lhelr producLs 1hls was Lhe sLraLegy followed by Lhe buslness ln Lhe uSA whlch developed Lhe
speclallsL area of aLhleLlc fooLwear 1he uk buslness may wlsh Lo conslder developlng Lhelr klds and
CelebraLlons range ln Lhls way as Lhey seem Lo have ldenLlfled Lhls as an area LhaL has markeL
poLenLlal 1hls would be a low rlsk sLraLegy for Lhem alLhough lL would leave Lhe quesLlon as Lo whaL
Lo do Lo reposlLlon Lhelr hlgh sLreeL buslness
2 roducL uevelopmenL Lhls lnvolves lnLroduclng new producLs wlLhln Lhe exlsLlng ranges
WoolworLhs sLraLegy would seem Lo lnclude poslLlonlng lLself as a klds and CelebraLlons reLaller
playlng on lLs currenL sLrengLhs WlLhln Lhls range are elecLrlcal communlcaLlons and klds dress up
caLegorles and emphaslslng Lhese areas would allow Lhe company Lo Lake full advanLage of Lhe
Lechnology boom 1helr use of range archlLecLures for Lhe Loys home and cloLhlng range and a
exLenslon of Lhelr own brand ranges such as Ladyblrd Chad valley and Colourplay show an
undersLandlng of Lhe need for a core compeLency ln belng able Lo provlde cusLomers wlLh whaL Lhey
wanL ln a way LhaL maxlmlses Lhe company proflLs

3 MarkeL uevelopmenL Lhls can be Lhrough elLher appeallng Lo a larger proporLlon of Lhe domesLlc
markeL or Lhrough explolLlng a new forelgn markeL lL has been suggesLed LhaL WoolworLh are
conslderlng markeLlng Lhelr own brands Ladyblrd and Chad valley Lo dlsLrlbuLors worldwlde
WhllsL Lhe ldea of belng able Lo access a whole new markeL for Lhese producLs Lhey should be aware
LhaL knowledge of lnLernaLlonal markeLs ls noL seen as one of Lhelr core compeLencles and whllsL Lhe
ranges are popular wlLhln Lhe uk Lhey remaln unLesLed ln an lnLernaLlonal markeL uslng Lhlrd parLy
dlsLrlbuLors ln Lhe sLraLegy may provlde Lhe local knowledge of forelgn markeLs LhaL WoolworLhs
lack
Cn Lhe domesLlc fronL WoolworLh may conslder opporLunlLles LhaL are avallable Lo grow Lhelr share
of Lhe markeL 1hese would lnclude furLher developmenL of alLernaLlve reLalllng channels such as Lhe
use of moblle phones and saLelllLe Lelevlslon channels 8equlrlng a degree of speclallsL knowledge lL
would be senslble Lo seek a Lhlrd parLy Lo develop and malnLaln Lhese concepLs lnLernally Lo Lhelr
sLores Lhere are opporLunlLles Lo make Lhe buylng process easler and qulcker for Lhe cusLomers
Lhrough Lhe lnLroducLlon of concepLs such as auLomaLed credlL card paymenL machlnes whlch Argos
have found Lo be very popular WoolworLh ls currenLly glvlng ouL mlxed messages regardlng lLs
sLraLegy on uLlllslng Lechnology as seen Lhrough lLs adopLlon of Lhe lnLegraLed lannlng sysLem and
klngsLore Lllls counLered by Lhe cessaLlon of research lnLo 8llu

4 ulverslflcaLlon Lhls ls a move away from Lhe exlsLlng core acLlvlLles Lo new producLs 1he
acqulslLlon of lloglsLlcs a voucher reLaller and dlsLrlbuLor may noL be consldered Lo be
dlverslflcaLlon buL more of an opporLunlLy for WoolworLh Lo caplLallse on lLs core compeLency of
dlsLrlbuLlon 1he wrlLer belleves lL ls unllkely LhaL WoolworLhs would conslder dlverslflcaLlon as a
poLenLlal sLraLegy for Lhe fuLure as Lhelr recenL approach has been Lo develop a clearer proposlLlon
for Lhe consumer Lo ensure LhaL Lhelr cusLomers and poLenLlal cusLomers are aware of whaL Lhey
have Lo offer
1he developmenL of Lhelr Luk 2 LnLerLaln MvC and SLreeLs Cnllne buslnesses show a prevlous
Lendency Lo dlverslflcaLlon and Lhe company may now feel Lhey have explored Lhls dlrecLlon as much
as Lhey wanL Lo ln Lhe shorL Lerm
3 ConsolldaLlon reduclng Lhe scale of operaLlons Lo speclallse ln core acLlvlLles 1he declslons Lo
sLop developmenL of WoolworLh Ceneral SLores and more recenLly 8lgW shows LhaL WoolworLhs
dlrecLlon ls one of conLlnued consolldaLlon ln Lerms of sLore deslgn 1hey have ldenLlfled LhaL Lhls
can produce slgnlflcanL value chaln beneflLs and by amalgamaLlng managemenL Leams remove
poLenLlal barrlers Lo maxlmlslng opporLunlLles as Lhey arlse
1he developmenL of Lhe Luk 2 LnLerLaln MvC and SLreeLs Cnllne buslnesses shows a lack of
consolldaLlon whllsL Lhe company has lLself ldenLlfled a need Lo offer a clearer proposlLlon Lo Lhe
cusLomer as Lo whaL Lhe company ls abouL 1hese approaches are noL necessarlly ln conLradlcLlon Lo
each oLher as Lhe new buslnesses have noL been poslLloned Lo Lhe consumer as WoolworLh brands
Lhereby ensurlng LhaL confuslon and blurrlng of Lhe proposlLlon does noL occur
WoolworLh have Lhemselves ldenLlfled several ways ln whlch Lo grow Lhelr buslness Should Lhey
recommend Lhe accepLance of Lhe Apax offer Lhey wlll undergo an acqulslLlon whlch wlll provlde
Lhem wlLh Lhe flnances Lo lnvesL ln growLh opporLunlLles 1hey have successfully enLered Lhe
elecLronlc enLerLalnmenL buslness as an area ouLslde Lhelr hlgh sLreeL sLores whlch provldes Lhem
wlLh an opporLunlLy Lo lncrease sales ln one of Lhelr secLors Lhrough an alLenaLlve supply
mechanlsm 1hrough alllances wlLh oLher companles Lhey are able Lo maxlmlse on Lhelr lnLernal
compeLency of supply chaln managemenL ldenLlfylng a poLenLlal nlche ln Lhe markeL for Lhelr klds
and celebraLlons ranges allows Lhem Lhe posslbllLy of organlc growLh wlLhln exlsLlng producL ranges
8evlewlng WoolworLhs sLraLegles for Lhe fuLure can be summarlsed as follows
SLraLegy ConcenLraLlon on bulldlng Lhe klds and celebraLlons offerlngs ln Lhe hlgh sLreeL locaLlons
SulLablllLy WoolworLh has an esLabllshed markeL share of Lhls area and are already seen as a key
provlder of such goods 1hey wlll already Lhe suppllers ln place lL makes sLraLeglc loglc Lo follow Lhls
paLh and lL slLs well wlLh Lhe organlsaLlons culLure
AccepLablllLy 1o boLh WoolworLh Lhemselves and Lhelr cusLomers Lhe loglc of Lhls approach ls
obvlous
leaslblllLy 8ulldlng on lnLernal sLrengLhs and an already healLhy markeL share concenLraLlng on Lhls
speclflc parL of Lhelr range should be relaLlvely easy
SLraLegy developlng Lhe elecLronlc enLerLalnmenL buslnesses ouLslde of Lhe hlgh sLreeL sLores
SulLablllLy as above Lhls ls an area where WoolworLh already has hlsLorlc knowledge of Lhe markeL
and producLs alLhough Lhe rapld developmenL of Lechnology means Lhey would requlre slgnlflcanL
research and developmenL efforL Lo be able Lo remaln compeLlLlve
AccepLabllllLy lnLernally Lhls sLraLegy may seem aLLracLlve Lo WoolworLhs buL Lhe wrlLer would
quesLlon how Lhey poslLlon Lhls wlLh consumers lL ls already noLed LhaL Lhe elecLronlc
enLerLalnmenL buslnesses do noL operaLe under Lhe WoolworLh name
leaslblllLy Lhls sLraLegy requlres more efforL Lo lmplemenL LhaL Lhe prevlous one As well as Lhe
research and developmenL requlremenLs Lhe markeL ls already hlghly compeLlLlve and open Lo new
enLranLs
CCnCLuSlCn
WoolworLh has a rlch and successful hlsLory ln varleLy reLalllng and ln Lhe course of Lhls
developmenL have galned many lnLernal compeLencles LhaL have supporLed Lhem Powever Lhey
are sufferlng lncreased compeLlLlon Lhrough a number of sources and Lhls has puL pressure on Lhe
company ln Lerms of malnLalnlng lLs markeL share WoolworLh are flghLlng Lhe compeLlLlon ln
dlverslfylng lnLo new areas as well as developlng exlsLlng ranges buL Lhe Lakeover bld by Apax may
force Lhem Lo move ln a dlfferenL dlrecLlon
8ack Lo Sample Lssays


8LlL8LnCLS
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