Woolworths Near Collapse, Risking 30,000 U.K. Jobs

Woolworths Near Collapse, Risking 30,000 U.K. Jobs

By Howard Mustoe

Nov. 27 (Bloomberg) — Woolworths Group Plc was left on the edge of failure and MFI Retail Ltd. collapsed, putting more than 30,000 U.K. jobs at risk, after the economy’s slide into a recession caused consumer spending to slump.

Woolworths, which opened its first shop in 1909, said this morning that it filed petitions for administration after an attempt to sell its retail stores ended. MFI appointed administrators yesterday.

Retailers are under pressure as a spending slump ripples through the U.K. economy. Higher food and energy bills are draining incomes as plunging stock and house prices erase wealth. The government pledged 20 billion pounds ($30 billion) of loans and tax cuts this week to spur the economy.

“The consumer economy got bad enough, fast enough,” David Stoddart, an analyst at Altium Capital in London, said yesterday evening. He advises selling Woolworths stock, which was suspended yesterday for the second time in a week.

Woolworths has more than 800 stores across the U.K. selling goods from candy to appliances. It employs almost 30,000 people, according to data compiled by Bloomberg. Furniture chain MFI, which was hurt by weaker demand as house sales plunged, had about 190 British stores and 2,500 employees.

Fewer House Sales

“The housing market has been the straw that broke the camel’s back,” said Bryan Roberts, an analyst at Planet Retail in London. “MFI is not the sharpest on pricing, and with people not moving house, that’s massively hit them.”

U.K. home sales are at the lowest level in at least three decades, the Royal Institution of Chartered Surveyors said Nov. 11. A seizure in credit markets has restricted banks’ ability to lend even as the Bank of England cut interest rates to the lowest since 1955.

The spending dropoff claimed victims from Ilva Furniture Ltd. to home wares retailer Rosebys Ltd., which both collapsed in September. Fashion chain MK One came under the control of administrators this month for the second time in 2008.

“This is a worrying time for employees, but part of the role of administration is to seek to save the business,” a spokesman for the Department of Business, who refused to be identified in line with U.K. government convention, said yesterday of Woolworths.

Debt Load

As sales crumbled, the retailer was hampered by debt that totaled 295 million pounds when its first half ended on Aug. 2, more than 16 times its current market value. Woolworths had interest costs of 18.6 million pounds in the period, more than today’s market capitalization. The stock has plunged by nine- tenths this year after falling 62 percent in 2007.

“If they didn’t have any debt, things would have been short of expectations, but there would have been nothing to tip them into administration,” Stoddart said.

The retailer also was hurt by a deterioration at its stores, which had a 72.5 million-pound first-half operating loss on sales of 660.7 million pounds. Revenue dropped 3.2 percent at outlets open at least a year in the period. The company said this week it was in talks on a potential bid for the shops without commenting on reports that they might be sold for 1 pound.

In addition to its stores, Woolworths has units that publish and distribute goods from DVDs to books. Those divisions lost 3.3 million pounds in the first half on sales of 446.3 million pounds.

Market Share

“I strongly suspect there is a profitable Woolworths chain within the loss-making business,” Altium’s Stoddart said. more

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