The closing of 131-year-old Woolworths presents an unenviable problem for those working in the UK licensing industry. The iconic British retailer was known as a go-to for licensed goods in the territory, and with the shuttering of its 700 outlets on January 5, licensors and licensees alike have lost a spot on the high street at a time when shelf space is harder than ever to come by. That said, the industry seems to have been girding itself for the bankruptcy (and the global economic downturn) by forging new retail strategies.
Not a surprise
Perhaps the only thing about the bankruptcy that raised industry eyebrows was the rate at which Woolworths collapsed. From filing papers on November 28, it took just a few short weeks to close out the stores after the retailer had been unable to find another buyer, putting more than 27,000 people out of work.
Certainly, rumblings about the iconic Woolies’ demise had been swirling for years. ‘I’ve been in the UK for three years, and all of that time, people have been talking about trouble at Woolworths,’ says Mike Connolly, VP of sales at Disney Consumer Products Europe. ‘The high street has been down by US$1 billion over the last few years.’
Similarly, Janet Woodward, head of licensing at Coolabi saw the sure signs of imminent closure only months into 2008. ‘We knew when the credit insurance was drawn in the summer, word went around rather quickly,’ she says.
The reasons for Woolworths’ failure are numerous and a re-telling of them could fill a retail textbook entitled What Not To Do. According to the panel of experts surveyed for this piece, the real root cause was the retailer’s sluggish reaction to the evolving retail landscape.
‘It was a victim of its own size,’ says Rob Corney, MD of Bulldog Licensing. ‘It was the kind of store you went to when you couldn’t find what you wanted anywhere else, and that is no way to run a retailer.’ In fact, Woolworths’ apparent ‘jack of all trades, master of none’ model ran counter to the way retailers need to behave in today’s market. This lack of focus, coupled with outsized overhead and stagnating promotions, marketing and staffing strategies all but guaranteed that no one would be shocked when the last door closed for good.
Woolworths in its very public death throes this past Christmas, however, might just have spurred a mini-windfall for retailers looking to fill the licensed-goods vacuum. With time running out, Woolies made a desperate attempt to clear shelves of inventory, including an estimated US$1.6 million worth of Entertainment Rights’ licensed stock. In December it started a price-slashing initiative that forced high street retailers and other UK outfits to follow suit and offer massive discounts.
‘What was not expected was this fire sale,’ says Corney. ‘If you have somebody putting up 70% discount signs, as a healthy retailer, there is no way you are going to be able to sell at full price.’
For his part, Connolly saw the war as a boon for up-and-coming hard goods retailers, such as Tesco and Sainsbury. ‘Other retailers were really aggressive in the way they went after that market share, and I think they all benefited,’ he says. In fact, the discounting frenzy is expected to have helped the bottom line in what might have been an even rougher holiday season had Woolies hung on and not cut prices with what some termed ‘reckless abandon.’ Even with the sales boost, just-released numbers indicate that the 2008 holiday season was the worst in recent memory. According to a British Retail Consortium-KPMG survey, UK retail sales fell by 3.3% on a like-for-like basis and by 1.4% overall when compared to December 2007 figures.
The price war also served to put consumers on notice that there are a number of retailers looking to fill Woolworths’ shoes that can deliver the licensed consumer products that were part of the fabric of the chain in its heyday.
The passing away of traditional consumer behavior that made Woolies what it was, has ushered in a new point-of-purchase era for licensed goods. By all accounts, online retailers in the UK had a banner Christmas. Sales were up a reported 14.2% from last year, ringing in sales of US$6.4 billion in December alone, according to industry tracker Interactive Media in Retail Group. As one retail expert parsed it, UK consumers are ‘finally pressing purchase.’
‘Amazon in the UK had a phenomenal quarter,’ says Connolly. ‘Argos online continues to drive its business. I think it’s going to pick up a lot of the high street business,’ he says, noting that the current high price of fuel, for example, makes stay-at-home internet shopping more attractive.
DCP, for its part, says Connolly, is welcoming the evolution of online retail. ‘We can drive content through online; it’s a natural for us as a media company,’ he explains, adding it eliminates many of the costly side-products of traditional retail for licensees. ‘It’s not like we have to put cardboard boxes on the shelves in 2,000 different stores with online retail.’
Bulldog’s Corney can foresee innovations coming to the online space that will allow smaller, independent online retailers to offer the same licensed goods as biggies like Amazon. ‘I think licensees will need to adapt,’ he says. ‘Maybe they will alter their minimum order quantities to evolve in the UK or perhaps they will set up an independent buying block as online is going to be a compelling, rich market moving forward.’
Picking up the bricks-and-mortar pieces
However, even if online retail continues to enjoy double-digit sales growth, it will not be a panacea. Other bricks-and-mortars stores, the same ones that successfully made their mark during the pre-Christmas price free-for-all, are also being characterized as the new home of licensing, particularly grocery chains.
The one-stop-shop mentality spurred by high fuel prices and a harried consumer lifestyle is making the UK grocery sector a new and attractive tier of retail for licensed goods. From the grocers’ perspectives, licensed hardlines act as traffic drivers with stable margins, as opposed to the more volatile pricing on food stuffs.
‘You have your up-and-coming groceries like Tesco and Sainsbury,’ says Connolly. ‘If you walk into these groceries, they continue to add into their hardline aisle.’
Another retailer expected to pick up some of Woolies’ slack is Argos, a catalogue-driven chain based in Liverpool that boasts more than 725 non-traditional outlets. The stores are really nothing more than depots where customers place their orders from a catalogue and pick up merchandise. There are no in-store displays, visible shelf space or any of the other traditional trappings of retail and it relies on a widely distributed 1,000 page catalogue to serve as its key promotional vehicle.
4Kids International MD Sandra Vauthier-Cellier, for her part, says, ‘Argos is a really strong retailer with a strong online presence.’ (Incidentally, 4Kids moved away from doing specific Woolworths promotions last year and decided to push IP such as The Dog at rival Toys ‘R’ Us. ‘I think the movement is already happening and now it’s just going to accelerate,’ she notes.)
Andrew Carley, head of licensing and merchandising for Contender Merchandising, also sees Argos as a possible heir apparent to Woolworths. ‘It has a mix that is closer to Woolworths than anything else,’ he says.
Corney agrees that even with the splintering of market share, a single major player is bound to emerge. ‘Licensing really needs a figurehead, which Woolworths kind of was,’ he says. ‘I think hopefully we find that someone else picks up that mantle.’
However, Argos was not immune to the economic downturn, despite its perception as a strong retailer in the UK moving forward. Sales at Argos stores open more than one year fell by 7.5% during the 18 weeks leading up to January 3, compared to a 5.3% decline in the 44-week period previous.
According to CEO Terry Duddy, the declines were a result of consumer confidence problems and the aforementioned price war. He believes that the outlook should improve in the New Year.
Another retailer primed to make a grab for a share of market is Mothercare (see ‘Mothercare toddles into more licenses,’ p. 44). The maternity and preschool specialist has more than 210 stores across the region and has dabbled in licensing with impressive results so far.
White knuckle approach
Just what is in store for the UK industry in the post-Woolworths era is, of course, anyone’s guess. But, in times of trouble there are a couple of axioms that are guiding those in the business. First, in rough times, consumers tend to stick with what they know. The more established the IP, the better.
‘Brands that are currently hot can extend their longevity,’ says Corney. ‘We are planning for 2011/12 now and all licensing people need to be planning longer term, because perhaps their properties could last a lot longer than they initially thought.’
Contender’s Carley concurs. He’s finding it’s a perfect environment for tweaking popular IP rather than trying out unproven ones. In a landscape where consumers might be trying out new retail outlets or ordering online or from a catalogue for the first time, it seems prudent to keep property and product choice consistent.
‘There is great opportunity for properties that are well-known,’ says Carley. ‘I suppose you can call it consolidation of your holdings,’ he notes, referring to current refresh plans for Peppa Pig, which hit the UK consumer products market in 2005. (Master toy licensee Character Options is currently morphing the cute porcine preschool property from just Peppa to Princess Peppa.)
Secondly, don’t panic. The sky has not fallen on the high street along with Woolworths. ‘It’s business as usual with a white knuckle approach,’ says Coolabi’s Woodward. ‘I’m sure when we come out on the other side of this, the people that are left will have really strong businesses – it will be a little bit of weeding out the chaff.’
Connolly adds DCP managed to pull in decent Christmas numbers despite suffering some stock loss at Woolworths and having to operate in the generally foul economic atmosphere. ‘We just had another quarter in the UK where we are absolutely pleased,’ he says. To be sure, Connolly is expecting the slow down to gather some speed in 2009, but contends ‘Kids still need clothes and school supplies and will still get their presents during the holidays.’