Industry takes stock as Woolies crashes out

The industry offers its opinion on the demise of the retail giant and its effect on toys.
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Fears over bad debts, concern over soaring credit insurance premiums, worry about who will pick up lost orders and speculation about a resulting shift in consumer shopping patterns, are some of the issues facing the toy trade following Woolworths’ slide into administration.

There are some, however, who still believe that with help, the retailer will resurface as a slimmer, profitable business. A number of parties have logged interest in buying the chain, suggesting a reversal of fortune may yet be on the cards.

Mattel’s general manager David Allmark commented: “The news, whilst disappointing, was not unexpected to Mattel UK. It has been clear for a number of months that Woolworths were experiencing significant trading difficulties across a number of their businesses.“

Despite scaling back on the levels of stock they were supplying to Woolworths, however, the toy industry will inevitably lose on some level.

Peter Brown, managing director of Flair said: “We have bad debts of about £700,000 this year [2008]. The demise of Woolworths and Youngsters has cost us a lot of money. Luckily we have credit insurance to reimburse us.”

Brown sees a heavy reliance on insurers creating a potential problem for the future, though, and continued: “The economic situation and the casualties that have resulted will inevitably mean premiums for credit insurance will go up and this is a problem the toy industry will have to face in 2009, along with rising costs in a number of other areas.”

German insurance group, Euler Hermes has said that it is expecting to lose up to u52 million (£44.2 million) this quarter.
The announcement stunned analysts, who had been expecting a fourth-quarter profit of about u18 million. The insurer recorded a net income of u152 million in the first nine months of the year.

There have also been reports that many toy companies aren’t covered by their insurance policies and if Woolworths does not manage to return to trading, it has been said that suppliers could be set to lose millions.

Many see the retailer’s demise as a sign that there will be changes in consumer shopping habits.

Darrell Jones, marketing director of Bandai said: “We expect some of the business to move to the supermarkets and online, but unfortunately a good deal of the business may just be lost and never recovered.”

Jones continued: “If tough trading continues on the High Street I think Woolies could be the first of many casualties. I think we will see consumers increasingly moving to the ‘discounters’ and online, forcing more well-known brands to disappear from the High Street.”

Nick Austin, MD of Vivid Imaginations also expects to see a number of adjustments in a post-Woolies retail environment. He explained: “Firstly, the consumer will have less choice and convenience. Secondly, some small towns will lose their shopper footfall if their local Woolworths does not re-open.

“Thirdly, there will be some immediate winners at retail level. Local indies and other High Street operators will inevitably hoover up market share left if Woolworths stores do not re-open in certain towns.”

Allmark concluded: “Clearly the impact of Woolworths going into administration is significant to the toy industry. Their toy representation has been a cornerstone of their merchandise offering for 99 years and it would be remiss to suggest that potentially we will not be impacted by the lack of visibility and scale they offer within the High Street.

“However, Mattel UK is mindful that as part of the administration selling off process, a new opportunity could be created to satisfy the clear market opportunity that exists. The toy proposition was not the reason Woolworths failed to succeed as a retail platform.”

On the retail side of the toy industry, TRA chairman and MD of The Entertainer Gary Grant sees a bright future for the retailer despite its troubles and expects its fortunes to be turned around. He said: “Many industries, toys included, would be worse off without Woolworths, so I expect something will be done to turn what was an unprofitable chain into a profitable business once again.

“There is much debate about how this might be achieved – perhaps it will be that 400 stores is a viable number and the current number of 820-odd isn’t, but whatever decision is made, if it saves the chain, it’s good news for all of us.

“For the 30,000 people who have been fearing for their jobs, I am relieved that there will be a future for all of them.

“Woolworths is being responsible and implementing measures such as removing gift vouchers from stores, so that customers aren’t left with unusable gifts. All staff were also paid at the end of the month [November] and hopefully something can be worked out going forward.”

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