Friday, July 18, 1997

Woolworth's stores to close, nibbled from above and below

By JANE M. VON BERGEN and SUDARSEN RAGHAVAN / Knight-Ridder Newspapers

Inside, there's that particular Woolworth's smell - the grilled hot dogs mingling with flat smell of plastic shower curtains, candy in bins and dishcloths left a little too long on the shelf.

Outside, there's that iconographic barn red F.W. Woolworth's sign that used to mean everything for sale here - a child's pool, a thimble, toilet paper, composition books in marbled black and white.

But in the not-too-distant future, Woolworth's, the original five-and-dime merchants, will be gone - along with the smell and the sign - run out of retailing, in part, by the success of Woolworth's athletic shoe business.

Thursday, Woolworth's management announced that it had decided to cut years and millions of dollars of losses by shutting all 400 of the remaining Woolworth variety stores and firing 9,100 employees. There are 36 stores in Pennsylvania, 34 in New Jersey and five in Delaware.

About a hundred of the stores will be converted into Foot Locker, Champs or other sporting goods stores run by the New York retailing monolith.

"Woolworth's been dead for 30 years, and now it's getting a decent burial," said New Jersey retail consultant Kurt Barnard, who publishes Barnard's Retail Marketing report.

Analysts and consultants pin the blame for Woolworth's demise to a change in consumer shopping patterns and plain old mismanagement and neglect by Woolworth's executives in the last decade or so.

No one could say that Frank Woolworth's retailing empire started out with a bang. His first store, the Great Five Cent Store in Utica, N.Y., opened in 1879 with the same concept behind today's dollar stores - sell nothing for more than a nickel.

The Utica store failed almost immediately, so Woolworth moved to Lancaster, Pa. with a more upscale concept, a five-and-dime.

There Woolworth erected a magnificent six-story building with ornate stone work, two minarets and a spectacular roof garden that transformed Lancaster's downtown area and gave it character, said Jack Loose, a historian at the Lancaster Historical Society. The first floor was, of course, Woolworth's.

In the 1940s, the original Woolworth's had marble floors, palm trees, mahogany counters and clerks in every section.

That building was torn down in 1949.

Meanwhile, Woolworth moved his headquarters to New York City in 1886 and went on a buying binge, acquiring other five and dimes. He expanded to Canada, England and France. In 1913, paying $13.5 million in cash, Woolworth finished construction of the landmark Woolworth Building in New York, then the world's tallest building at 792 feet.

When Woolworth died in 1919, the chain had 1,081 stores and sales of $119 million.

Woolworth himself was something of a control freak, said Loose, who has studied the history of the man and his company.

Suspicious of his employees, he built a cage in the back to watch his employees. Whenever an employee needed some change, he or she had to walk back to the cage and get it from Frank.

"They had to run back each time they made a sale," said Loose. "Frank was the cashier, at least until the store got too busy."

But Woolworth was also a marvelous promoter who had a knack for deciphering the psyche of the customer: He placed toys at the front of the store, in visible sight of all the kids who were coming in with their parents.

Why?

"Frank had this idea that kids would let out a howl and parents then would have to buy something," said Loose.

Decades ago, fashionable women in fine apparel would hop off the trolley and head straight for the Woolworth's flagship in Lancaster. So for Lancaster residents, Thursday's news comes particularly hard.

"This is a disaster for us because we had the first successful store for F.W. Woolworth," said Pamela Klahr, vice president of Marketing for the Lancaster County Chamber of Commerce. "We were very proud, so we are very disappointed."

Not Carl Duberstein, managing director of Greenway Partners, a New York investment company with nearly a 5 percent stake in F.W. Woolworth.

"I'm very pleased," he said. "It showed strong leadership by the existing management of the company."

At last month's Woolworth's annual shareholders' meeting, Duberstein had pressed the company to sell the F.W. Woolworth stores.

Since then, rumors had floated around Wall Street that the company would jettison the ailing general merchandise division.

"The other divisions are profitable," said Barnard. "Woolworth's has dragged down the bottom line."

Last year, the athletic shoe division, which included Foot Locker, turned an operating profit of $461 million. By contrast, the five and dimes here in the United States had an operating loss of $37 million, despite some last-ditch efforts by the company to resuscitate the chain.

In 1996, Woolworth's tried out a new format and took it for a test-drive in Wilmington, Del., where customers generally had a good reaction to a cleaned-up, brightened-up store. Woolworth's eliminated its pet department and beefed up cosmetics and housewares. Famous brands, such as Pyrex and Rubbermaid, got prominent display on the shelves.

"This company has invested significant resources in trying to revitalize the F.W. Woolworth chain, including time, money and management's attention," said Roger N. Farah, chairman of the board and chief executive officer.

"After taking a hard look at the long-term viability of this business, we have determined that as American consumers turn to different 'large box' mass merchandise and specialty retailing formats to meet their shopping needs, the marketplace simply could not support Woolworth's form of general merchandise business."

Indeed, a whole host of businesses nibbled away at Woolworth's franchise as general merchant to the masses over the last decade or so.

Drugstores sell crayons and pool toys. Supermarkets stock lawn chairs and socks. Discount department stores such as Wal-Mart expanded Woolworth's offerings into big-box shopping palaces that attracted customers. The ubiquitous dollar stores and small variety stores, which rely on liquidations and closeouts to fill their shelves, scraped shoppers off the bottom of Woolworth's customer mix.

At the same time, the corporation had little cause to worry. Why? Because the athletic shoe division was running up profits big time.

A Woolworth's counter became a part of U.S. history in 1960, when four black college students sat on the stools in Woolworth's Greensboro, N.C., store. The counter had been declared "whites only," and the students' defiance touched off sit-ins in businesses across the South. Woolworth closed the Greensboro store three years ago, but the counter is on display at the Smithsonian Institution in Washington.