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September 24, 2020

Retail – Woolworth’s History

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Born in 1852, Frank Winfield Woolworth (F. W. Woolworth) radically reinvented retail in the late 19th and early 20th century, becoming one of the most revered entrepreneurs in American history at the time of his death in 1919.

TimeNote

The Birth of an Iconic Brand

”Woolworth was 100 years ago what Wal-Mart is today,” 

History.com

Naturally not without his critics, Frank Woolworth nonetheless rose from the bottom of a rural New York State ‘dry goods’ store to build an empire of ‘five-and-dime’ stores with a head office at the tallest building in NYC.

The Woolworth’s Building in NYC

In 1873, he began an unpaid apprenticeship at Augsbury and Moore, a dry goods store in nearby Watertown, New York.

History.com

Four years into his retail career, he was what one journalist called “a fourth-rate salesman in a fifth-rate country town”—and his salary was even cut when the store experienced a downturn.

HISTORY.COM

The store where Woolworth worked was nothing like modern-day shop. Goods were stored behind large counters and stashed away in drawers. Shoppers couldn’t browse—rather, they relied on a clerk to help them navigate the items inside. 

HISTORY.COM

Woolworth’s Museum – the W.H. Moore stores would eventually be rolled into the Woolworth’s brand

Department Stores only existed in a few big cities, but “five-and-dimes” were an emerging concept in the late 1870s. The ‘Five-Cent Counter Craze‘ had sparked his interest. Keen to get into the game himself, he borrowed $300 and opened his first five-cent store in Utica, New York, in February 1878, which promptly failed. He then opened up another store in April 1879 in Lancaster, Pennsylvania – this time with an expanded section to include 10 cent items – and so began the Woolworth’s empire.

At the time, chain stores were unheard of and general stores were often the only stores in town. Since farmers produced most food themselves, the stores focused on “dry” goods like cloth, tea and sugar, and often served as a community gathering place and post office. 

History.com

Frank Woolworth’s strategy was to expand his retail footprint by opening multiple locations, buying items in bulk (increasing profit margin), and eventually squeezing suppliers similar to how modern-day bulk retailers achieve more control in the market. When he would squeeze a competitor out of the market, he would often buy them out.

In 1905 Woolworth incorporated, as F.W. Woolworth & Co., and in 1909 he founded F.W. Woolworth and Co., Limited, to serve Great Britain and Ireland. Then in 1911 he invited four rival American retail chains to merge their businesses with his and form a single national corporation. The four rival retailers were Seymour Horace Knox (Woolworth’s first cousin), with 108 five-and-tens; Fred Morgan Kirby, with 84; Charles Sumner Woolworth (Frank’s brother), with 14; and Earle Perry Charlton, with 48. Woolworth’s own giant company at the time of the merger had 319 stores. Agreements were signed on Nov. 12, 1911, and the new consolidated company, with 596 stores coast to coast, assumed the F.W. Woolworth Co. name. 

Brittanica

The company was making money hand over fist. The F.W. Woolworth skyscraper in NYC was bought for $13.5 Million in cash in 1913. By the time of his death in 1919, the company was worth more than $65 Million with more than 1,000 stores across the US, Canada, Ireland, and UK. Despite the turmoil of War, a deadly pandemic, and general strife, the Woolworth’s empire had thrived through the creation of an international network of five-and-dimes, servicing the public with cheap goods, attentive service, and a seemingly ruthless founder who squeezed suppliers to increase margins.

Woolworth’s Museum – 1917 in the US

His brother, Charles Sumner Woolworth, became Chairman – a post he held with distinction until 1944, while the Company Treasurer, Hubert Parson, stepped up to become President.

Woolworth’s Museum

The Roaring ’20s, Dirty ’30s, and World War II

The Twenties were a golden age for Woolworth around the world.

The Woolworth’s Museum

Coming out of the 1st World War and on the heels of the death of the founder, you might have thought that Woolworth’s would be reeling a bit, but they hit the gas in the Roaring ’20s and more than doubled their footprint through rapid expansion across Britain, Ireland, and the creation of a subsidiary in Germany.

More than 400 stores were opened in Britain and Ireland, many of them freehold properties which were purpose-built to order, while the Americans opened a whole new subsidiary in Weimar Germany

Woolworth’s Museum

The expansion into Britain and Ireland coincided with not just an increased retail footprint for the chain, but also the beginnings of a new era of retail that was heavily influenced by the British and its Executives and Managers. Fred Moore Woolworth, F. W. Woolworth’s second cousin, became the MD (Managing Director) in Britain; however, Fred’s health took a turn for the worse in 1922 and he passed away in 1923. That led to the promotion of Bill Stephenson (‘The English Mr. Woolworth’) to lead the growth in Britain; initially, Bill had been the only British recruit to join F. W. Woolworth UK.

WL Stephenson – Woolworth’s Museum

A hands-on Manager, he knew retail is detail. He reviewed the performance of each and every store, even as the chain grew to over 700 strong. 

Woolworth’s Museum

While growth in the US continued to accelerate under the leadership of F.W. Woolworth’s brother Charles, the rapid ascent of Woolworth’s UK – under the direction of Mr. Stephenson – led to many retail innovations that would turn Woolworth’s into the iconic brand that many in the post-War generations would come to love.

The store formula took hold as a more modern form of retailing. It helped to sweep away old traditions like having to choose an item to buy from the window before entering a shop. As the chain grew so did its economy of scale.  Shoppers found values on the counters that had never been available before, and told their friends.

Woolworth’s Museum

This even led to problems of copycatting, as a group of iconoclasts snuck under the radar and created their own version of the Woolworth’s brand in Australia, one that was not under the control of F. W. Woolworth and Co.

In 1924 a canny group of Australian entrepreneurs led by Mr. H. G. Christmas were looking for a name for their new ‘stupendous bargain basement’. They cheekily applied to register the name F. W. Woolworth & Co. Ltd., in an attempt to cash in on the brand’s pulling power, even though they were completely unrelated.

Woolworth’s Museum

It wasn’t until the mid-1920’s that the chain began to see some of its first problems, as competitors had adapted to the format. The Board was relatively hesitant to shakeup such a proven formula; however, their German subsidiary was proving successful upon its opening in 1927 due to their experimentation with higher-priced items.

Fine Woodwork – Woolworth’s in the UK and Germany

By the mid 1920s growth in the USA was slowing down. Rival dime stores had adapted to price inflation with fifteen cent lines. They had translated the formula to become the 25 und 50 Pfennig stores, roughly 10 and 20 cents, allowing a much broader range. The chain grew so rapidly that it had become self-sustaining before Hitler placed restrictions on foreign companies operating in Germany.

Woolworth’s Museum

The expanded price range reinflated Woolworth’s fortunes in the latter part of the decade, leading up to its 20th birthday (officially) ahead of the infamous Market Crash of 1929.

By 1929 Woolworth had about 2,250 outlets, and its stores continued to proliferate in the United States and Britain. The company raised its price ceiling to 20 cents in 1932 and abolished price limits altogether in 1935. 

Brittanica

Whether it was luck or fortune, one of the founders managed to convert all his stock into gold ahead of the 1929 Stock Market crash, while Mr. Stephenson worked with the Company Treasurer Byron Miller to restructure the shares on the London Stock Exchange (LSE), including the issuance of a special dividend to investors, which helped save many of those who were wiped out in the Crash.

The combined actions buoyed the firm to continuous growth, despite the stock market crash in the United States and increasing tensions in Europe.

1934 marked two very different milestones in Britain and America. The UK firm was enjoying an unrivalled period of prosperity, opening a store every five days outside the Christmas season.

Woolworth’s Museum

Woolworth’s Museum – 1937 in the UK

Leading up to the Second World War, inflation became a problem in Britain which forced the company to abandon the upper price limits in its somewhat independent Sixpenny stores. When Britain and Canada joined the War against the Germans, the chain tried to hold a ‘neutral position,’ which certainly caused controversy in its home markets!

As Britain and Canada went to war, the USA enjoyed a period of prosperity. New York recalled their American Directors from Britain and Germany, but all refused to leave. To show neutrality the Corporation donated to war relief in both countries, funding an orphanage near London and ambulances for Berlin.

Woolworth’s Museum

Once the Americans joined the War in the early ’40s, Woolworth’s became involved in the American wartime efforts, while UK Chairman Mr. Stephenson became a key piece in the British efforts as Ministry of Aircraft Production. It is unclear what exactly happened with the German subsidiary, however, the Woolworth’s Museum lists out extensive damage to its retail and warehousing facilities across the US, UK, and Germany as a result of the War.

Post World War II Period

By 1950 every pre-war Buyer and Director had retired both in the United States and in Great Britain. Without the upper price limit it fell to a new generation to redefine the brand and to try to maintain the uniqueness that had taken Woolworth to the top of the market. The approach was very different on either side of the Atlantic

Woolworth’s Museum

As the War ended, the Baby Boom began and with it came a new era of prosperity in the Western World – although some places benefitted more than others. The American and British divisions (somewhat independent) were living in two different economic realities, not to mention that their two cultures differed greatly.

Like distant cousins, the British and American companies enjoyed a cordial but arm’s-length relationship. For historical reasons the American company owned 52.7% of the British shares, but more than twenty five years earlier the Chairman of the time had observed that the child had outgrown its parent. By 1934 It had grown faster, captured a larger market share and generated more profit per store.

Woolworth’s Museum

Given that there had been no war fought on Canadian soil either, Canada was another important post-War market for the company, which continued to grow and make profits through the ’50s.

In 1959, the company called a ‘global’ convention, bringing together Store Managers and Executives from across Britain and North America to celebrate the company’s 50th year (since Incorporation). Robert Kirkwood was the company’s CEO. He sought to transform the brand through to adjust to the rapidly-changing market conditions and was described as a ‘visionary’ leader of sorts. His speech at the ’59 convention emphasized the emerging competition and how quickly the market had changed.

“Ideas, shopping habits, business standards and practices are constantly being altered.  In our own Company in America the changes have been violent during the past few years, and their impact on profits, tremendous.  Competition of a sort that was practically unheard of ten years ago, has become formidable.”

Kirkwood Speech – 1959 Convention

The big change was the move to ‘self-service,‘ and the previously pioneering Woolworth’s brand found itself behind the rest of the pack. In Britain, they launched their first self-store in 1955, a first for the Woolworth’s brand.

UK ‘Self-Service’ concept – 1955

The whole concept of asking customers to take a basket, to serve themselves and take their purchases to a checkout at the front of the store was brand new. A task force thought up a series of slogans and messages for customers to explain how it all worked.

Woolworth’s Museum

Woolworth’s Museum

Around a fifth of the stores opened between 1958 and 1966 operated the self-service model, with the remainder continuing to use the tried and tested personal service method.

Woolworth’s Museum

By the ’60s however, Woolworth’s was falling far behind the competition in the ‘self-serve’ game and the American branch of the company was in search of a new idea to help the chain reinvent itself.

As shoppers moved to the suburbs after World War II, they became less interested in stores that offered bargains and flocked to retailers that stocked all kinds of items instead.

History.com

The Creation of Woolco – 1962

CEO Robert Kirkwood had already begun making moves, but perhaps his signature move – which would ultimately be the downfall of the company – was the launch of the Woolco brand and retail model in 1962.

The CEO had already moved many Main Street stores into Malls and Shopping Centers. The next step was bolder still. He launched a chain of much larger Woolco stores out-of-town. These offered a one-stop shop with plenty of car parking. The idea was partly inspired by Kresge’s K-mart.

Woolworth’s Museum

Pleasant Family Shopping

Woolco was a completely new concept, with the company deploying a team of architects and designers to come up with a retail design that was built for big, out-of-town suburban style shopping that included new fashion, home furnishings, and the creation of an auto and garden sections. Much like the modern-day Canadian Tire, Walmart, etc. The first Woolco stores were launched in Columbus, Ohio and Hamilton, Ontario, Canada in 1962. And the CEO was ready to go big or go home with this concept.

Trading was mediocre, but the CEO held faith, opening 150 outlets by the end the decade. He borrowed money on backloaded mortgages to finance the move, expecting the format to gel long before these fell due for payment in the Eighties.

Woolworth’s Museum

There were more than 100 Woolcos by the end of the 1960s. Woolworth’s would also acquire the shoe giant G.R. Kinney in 1963, and the fashion chain Richman Brothers in 1969. Woolworth’s UK was hesitant to open Woolcos due to the different culture and buying habits of British consumers, but they opened 3 select locations between 1967 and 1969.

One of the 1st British Woolcos

Under Kirkwood, Woolworth was confident and dynamic, but many of his ideas did not prove successful. The Woolco formula did not make sufficient profit to justify the set-up investment. 

Woolworth’s Museum

Buy the time Woolworth’s reached the ’70s, it was on the decline, mired in debt, declining profits, and a lack of alignment between Executives on the different sides of the pond.

The Beginning of the End – 1979

In 1979, the company received its first hostile takeover offer from the small Canadian company called Brascan. Brascan was like the new-kind of LBO (Leveraged Buyout) firm that became popular on Wall Street in the ’80s. Their bid failed, but had they succeeded, they would have taken over an empire of nearly 5,000 retail stores that spanned the world.

Had it succeeded they would have taken control of 4,593 stores, including 1,458 F.W. Woolworth branches in the USA, 212 in Canada, 197 in Germany, 24 in Mexico and 8 in Spain, as well as 383 Woolcos, 2,035 Kinney Shoe outlets and 276 Richman Brothers stores in North America. They would also taken control of the British company’s 1,026 stores, thanks to their 52.7% share.

Woolworth’s Museum

The $35 per share bid by Brascan became a true skirmish between Boards, with Woolworth’s Board arguing foul play by Brascan and its bankers; however, despite the fact that the hostile takeover was successfully repelled, the company was facing a cash cliff that would inevitably lead to their downfall a few years later. All because CEO Kirkwood’s decision in the 60’s to finance the Woolco rollout with the company’s existing mortgages.

Looking back on the battle from today’s perspective, it is hard to believe that the Board did not know that the Company was going to face a huge cash shortfall when the bonds it had issued to finance the openings and acquisitions of the 1960s fell due for redemption in 1982/3

Woolworth’s Museum

Instead, the chain would end up being sold off in pieces, starting with the 1982 buyout of the UK firm. The controversial deal for £310M by Pasternoster (of ‘Pasternoster Stores’) had the consent of only one shareholder.

All of the Woolcos were closed in the US in 1983, while they remained open in Canada where the concept had proven successful. The American-controlled company launched a restructuring plan in 1993 that saw the closing ~400 stores in the US, while converting its Canadian stores to ‘The Bargain! Shop’ for closeout purposes.

Meanwhile, Woolworth’s Woolco discount stores faced stiff competition in urban areas. After closing most of its Woolco stores in the U.S., Woolworth’s sold the remainder of its Canadian Woolcos to Wal-Mart in 1994.

HISTORY.COM

120 of the 160 Woolco stores in Canada were sold to Walmart in 1994, while the other 40 were closed.

Superstores like Wal-Mart—which learned lessons from Frank Woolworth’s insistence on controlling every facet of the manufacturing and sales process—eventually drove five-and-dimes out of business. The last remaining Woolworth’s five-and-dime store closed in 1997.

HISTORY.COM

And so, about 118 years after it was started by F. W. Woolworth as a revolutionary new concept in retail, the Woolworth’s dynasty went down with a whimper. Decisions made in the ’60s and ’70s proved to be crippling for the brand by the ’80s, and amid a new era of competitors that included Walmart, KMart, and others, the company simply couldn’t compete.

On March 17, 1997, Wal-Mart replaced Woolworth’s as a component of the Dow Jones Industrial Average.[13] Analysts at the time cited the lower prices of the large discount stores and the expansion of supermarket grocery stores – which had begun to stock merchandise also sold by five-and-dime stores – as contributors to Woolworth’s decline in the late 20th century.

Wikipedia

People walk past an F.W. Woolworth five and dime store on a city street, 1940s. (Getty)

Nevertheless, Woolworth’s will always be remembered fondly by many who shopped in the store or worked in the chain during its golden years. They created a family-friendly, sociable environment where one could go for lunch, or to buy toys for the kids, or simply to browse the newest retail goods. Their original five-and-dime concept stores helped revolutionize the supply chain and brought lower-income families an array of high-value goods during hard times, while thousands and thousands of individuals were happily employed and able to provide for their families. Hopefully, we will see another retail chain with a similar spirit and vision emerge as we enter a new era of retail in the decade ahead.

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