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Last Updated: Wednesday, 20 September 2006, 11:24 GMT 12:24 UK
Q&A: What's wrong with Woolworths?
People passing Woolworths store
Woolworths plans to focus on its new "catalogue model"
Retailer Woolworths has been a presence on the UK's High Streets for almost 100 years, but the business has recently run into trouble.

Latest figures show its losses for the first half of the year have widened to 64.9m from 20.2m a year ago, while sales have slumped more than 8% during the period.

Following such bad news, consumers and experts are now asking whether Woolworths is in terminal decline.

Why is the well-known name suffering so badly?

Woolworths has been suffering in the face of tougher competition on the High Street and not only from bold supermarket moves into the non-food market.

Elsewhere, specialist retailers like HMV and B&Q are nibbling away at the group's household and entertainment sales, while online firms such as Amazon are becoming more dominant in the music, DVD and book markets.

According to Independent Retail analyst Teresa Wickham the group is being squeezed "three ways" in its key toy, confectionary and entertainment markets, leading to lower margins.

However, its latest results also have to be looked at in context, Woolworths traditionally fares much better around the Christmas period when it makes 80% of its profits.

Is it just the competition to blame?

Woolworths has also blamed the summer heatwave and the football World Cup tournament for its woes this year.

Hot weather meant more people avoided the High Street, preferring instead to cool off at home, in the garden or even at the beach.

Rising temperatures also meant chocolate sales melted as consumers opted for cooler treats such as ice creams or iced lollies.

But was it all bad news?

Not necessarily.

The hot weather led to record sales of its outdoor toys as families made the most of the sunshine.

Meanwhile, its EUK - which provides music and DVDs to other retailers - and joint publishing venture with the BBC, 2entertain, actually managed to offer some bright spots.

The release of the second series of Dr Who and of the latest series of Little Britain helped boost sales at the two divisions.

Could Woolworths be behind the times?

The group - originally a subsidiary of the US company that opened its first shop in Liverpool in 1909 - now has more than 800 stores across the UK.

But while it is a well-known brand name, customers have begun to complain that they can find the products it offers cheaper elsewhere.

However, analysts note that Woolworths stores still fare well in towns like Ludlow where there is no similar competition.

Woolworths has also experimented with new formats, opening its first Big W out-of-town format in 1999 as well as making its way online as early as 1996.

The company is not the only big name chain to have struggled in recent years - Mothercare, Boots and Marks & Spencer have all battled to revive their businesses in recent years, with mixed results.

What is Woolworths doing to improve its fortunes?

It is trying to lure in more customers, particularly by moving to a "catalogue model". Its new home catalogue, which will include more than 5,500 items will be available by the end of October.

Customers will be able to order online, by phone or in store where it plans to open a sort of "mini-Argos" department. Tills have been upgraded to allow online ordering while Woolworths has also set up in-store internet kiosks.

It has also embarked on a major store refitting programme and plans to turn itself into a place for "kids and celebrations" by concentrating on birthday cards, Halloween and key dates such as Easter and Christmas.

As part of the shake-up, the group is also rolling-out its Ladybird "store-within-a-store" format for its children's clothing range.

And despite its problems, it also hopes to open up 100 new stores over the next four years.

Meanwhile, analyst Teresa Wickham added it is trying to strengthen its management team. To that end it recently took on former Asda non-food manager Tony Page as number two to chief Trevor Bish-Jones.

What does the future hold?

Ms Wickham believes Woolworths' "real route to success" relies on its entertainment ventures - and its toy sales.

She argues that Woolworths has a much better offering on the children's toy front than supermarkets, where the goods on the shelf are limited.

However, she also warns that Christmas will be "absolutely vital" to the group's fortunes.

Meanwhile, takeover speculation surrounding the group now seems to have eased.

Many reports had linked Baugur with the retailer, but the Icelandic group now appears to be concentrating its efforts on House of Fraser.

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