Winn-Dixie Gets Smart With Store Closings
When a retail chain closes stores, there are those who will say it's a bad sign, an indication that the chain is faltering. But in the case of Winn-Dixie (WINNV), the move looks far savvier than you might think.
A couple of years ago, when Winn-Dixie looked like it was spiraling down the drain, it was smart enough to hire Peter Lynch as CEO, the guy whose forced departure from Albertsons was the beginning for the end of that chain. Lynch saw what was wrong, shored up operations and started a remodeling program to bring Winn-Dixie up to date while focusing on tradition as hide-bound adherence to past practices but as a commitment to serve the needs of communities it knew well from long operation.
It was a best-shot strategy. The chain is too big, too poor and too hemmed in by competition to attempt a major transformation. It's a tough spot, but the company's long history means a lot of its stores are so well integrated into communities that consumers have to drive past one to reach a competitor. Winn-Dixie's mission: Convince them that doing soo it's too much bother.
That's why the store closings are smart. Remodeling is expensive and putting money into stores that never are going to contribute to growth is just a silly waste of money. And Winn-Dixie is using the store closings to consolidate its entire business, going from four operating regions to three, cutting headquarters staff and, so, saving, money it can invest in lower prices, attractive promotions and remodeling, in other words making stores that have prospects attractive enough to convince a few more people that it isn't worth driving by to reach Walmart or Publix or BJ's or whoever.
Chains sometimes fail because they don't close stores soon enough. Smart retailers walk away from businesses where progress is impossible or at least too expensive to contemplate. Kroger (KR) has traditionally dropped stores and even whole markets when convinced they couldn't achieve the top or second market share spots with reasonable time and marketing spend.
Even some moves that look like a big blotch on a company's record make sense if you look at them closely. Critics may have chided Walmart (WMT) about its withdrawal from Germany, but the move was foresighted. Recognizing that it had to develop a new distribution system to properly execute the kind of strategy that drove its success elsewhere, the company faced a major investment.
However, it recognized that the supermarket/hypermarket sector where it operated was declining as German consumers shifted to deep discounters such as Aldi and Lidl. So, the company said Nien! And it got out, shifting investment money to markets with better growth prospects including Brazil, India and China. How smart was that? Europe is in what could be a generational economic malaise while Brazil, India and China have enjoyed some of the strongest growth rates among major nations.
Back in the United States, Winn-Dixie has its own problems. One is ferocious competition. Starting in the 1980s, competitng supermarket started grabbing share from it. A particular scourge was Food Lion, which had developed a strategy that focused on stocking limited assortments of high-volume products, one emulated later by supercenters. And that lead to another big Winn-Dixie problem. It competes in markets that not only are chock full of tough supermarket operators -- and let's not forget Publix -- but one grown thick with Walmart supercenters. Not only that but all three warehouse clubs operate in at lease some areas where it has stores. Even BJ's (BJ), the lease in terms of sales and stores, can punish Winn-Dixie as it has become, essentially, a bulked up supermarket.
The root of Winn-Dixie's vulnerability was its traditionalism. In the 80s, when American diets were becoming more diverse, the company still pushed its meat operations. And its stores looked like they were holdovers from the '70s. With the remodeling program in place, Winn-Dixie still is struggling to get with the times, but by focusing turn around efforts on how and where it can become competitive again, it least has a chance of survival