APPAREL A LIKELY KEEPER AT WOOLWORTH

Byline: Sharon Edelson

NEW YORK--Woolworth Corp. continues its soul searching over what businesses to keep and what to cut loose. The company's new annual report gives some clues as to the direction Roger N. Farah, Woolworth's new chairman and chief executive officer, may be taking the firm.
The favorites to make the cut are the athletic footwear and apparel division and the Northern Reflections women's casual sportswear chain. Those more likely to receive harsher judgment include some of the firm's international operations, including those in Mexico and Germany, where business has been weak.
Some observers note that Woolworth's five-and-dime operation represents one of Farah's greatest challenges, but that he may be reluctant to divest such a huge business. Also, the five-and-dimes occupy valuable real estate in many locations, and are closely linked to the company's heritage.
Farah, who was appointed on December 12, said in the report's introductory letter to shareholders that several specialty store formats in the area of athletic footwear and apparel are among the company's strongest.
While revenues for individual specialty chains are not broken down, the athletic footwear and apparel division, which includes the Foot-Locker and Lady Foot-Locker formats, did $3.5 billion in sales in 1994, compared with $3.1 billion in 1993.
Northern Reflections had same-store sales increases of 14 percent in 1994 and 45 new units are planned this year. Lady Foot-Locker's same-store sales were up 4.9 percent last year and 22 new units will be opened.
Farah noted that the Canadian business, especially the Northern Group of apparel stores turned in a strong performance. However, Germany and Mexico showed depressed results due to economic factors.
At a meeting with Wall Street analysts on Monday, Farah made it clear that "every single Woolworth business is under review," said Janet Mangano, an analyst at Burnham Securities, who was at the meeting.
"Divestiture could be based on geography like Mexico or Australia if they view those operations as costing more to run than they should," she said. "One thing is clear, the shape of the corporation is going to be different a year from now.
"Forty companies is too many," Mangano added, referring to the number of retail concepts Woolworth's operates. "That became clear yesterday. There needs to be a better consolidation of the business."
Farah is already thinking along those lines. Woolworth hired McKinsey & Company, a consulting firm, to help evaluate its businesses and determine their value. Mangano believes it's not so much to place a price tag on them but to decide which are candidates for divestiture.
Farah said he will review all 40 businesses--he has already seen many of them--within the next 90 days to decide which should be sold.
"We plan to invest our capital in our successful businesses--or those with the potential to be successful--and divest ourselves of those that we determine to be non-strategic," Farah said in the annual report. "As a consequence, we expect that future sales of under performing units...will also provide the company with improved cash flow."
Although Farah did not indicate which "underperforming units" he may divest, the annual report indicated that revenues at F.W. Woolworth Co., the company's five-and-dime division, dropped to $1.5 billion in 1994 from $1.8 billion in 1993. The five-and-dime division's sales per square foot improved in 1994 over 1993, but operating performance remains fairly low, Mangano said.
The five-and-dime division is clearly Farah's biggest challenge. Industry sources believe Farah may exploit his private label and sourcing abilities--honed at Federated Department Stores--to improve the chain's confused and sometimes careless approach to apparel merchandising.
"He could bring his apparel expertise into the picture," said Arnold Aronson, a principal of Levy, Kerson, Aronson & Associates. "The five-and-dime stores are a big challenge, but there are ways to reinvent the business to add a new generation of convenience and products that will enliven the current business."

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