Woolies: an old favourite gets crunched

Why on earth would an old High Street favourite like Woolies hit the skids?
Technically, because it ran out of money to pay its suppliers.
In reality, it’s because Woolies is a chain that fell out of fashion a while ago. Even last year, before the credit crunch began to hit the High Street, it lost £90m.
What had once been a family favourite that grew out of a US retailing pioneer had turned into a low-price store offering very little you couldn’t get more conveniently at your local Tesco, neighbourhood store or online.
For the 300 or so people who work in its stores in Nottinghamshire, this is an awful time. They’ve got to keep the show on the road in the run up to Christmas so the stores can sell off their stock.
And after that? What I’d guess will be an unhappy New Year.
In an age when Woolies has been crowded out by supermarkets and online retailers, its big stores may not be missed that much. But the shops in places like Bulwell, Clifton and Eastwood mean more to the communities they are part of.
You can blame the credit crunch on two fronts. Woolworths’ sales have clearly suffered, its profit margins crucified by the fact that everyone else is cutting prices.
It’s also been finished off by the blight affecting what’s known as trade credit insurance. This is a burning issue in business at the moment.
Like most retailers, Woolies bought goods from its suppliers on credit, the theory being that it would pay them back after it sold those goods. The suppliers took out insurance in case Woolies hit trouble and couldn’t pay them.
In a weakening economy, Woolies was clearly in trouble. So the insurance companies refused to provide cover because the risk was too high. Suppliers demanded upfront payment from Woolies and the knock-on effect of that is that it was spending money faster than it was making it.
Its financial backers wouldn’t give it anymore, so it called in the administrators.
As the problems at MFI have demonstrated, recession has no respect for old favourites. It ruthlessly homes in on weak businesses like a laser-guided missile and hits them hard.
Whether Woolies or MFI come back from the brink is doubtful. They won’t be the last big names to go.