Why I Like Woolworths - Potential Brand Value
I'll start with the negative first.
Woolworth's stores (WLW) in the UK are a disaster, almost everything is wrong with them.
But disaster is too kind a word for the shareholders who have seen the value of their shares drop from the mid 30s (pence) over the last 18 months to now stand around their all-time low of 5.55p.
But now the good news.
I believe the Woolworth brand still offers great value. In fact one could probably make the argument that the shares at 5.55p are only valuing the brand name with everything else pretty much worthless.
So why do I think that buying Woolworth's stock might be a good idea, one that is very speculative I might add?
Because household named brands, however bad they are, can be totally transformed.
Two Classic Examples Of Brand Reinvention
For decades Skoda, alongside its nasty cousin Lada, was the butt of 1001 jokes when the Iron Curtain was still drawn.
About 8 years ago I had to go to Germany on business and pre-booked a hire car. As we know when you book a car they never tell you what you're going to get, rather 'similar to a Ford Mondeo'.
When you fill in all the paperwork at a Car Hire desk and walk to where it's parked there's often a sense of hopeful anticipation. Is it going to be new, is it going to have a decent hi-fi, is the model going to be a good one?
As I was walking to my car I looked at the paperwork in more detail and was horrified when it said 'Skoda'. But my initial shock couldn't have been more wrong as the car turned out to be great, a real pleasure to drive and it looked good as well.
Of course, Skoda then wasn't the Skoda of old as it had been bought by Volkswagen. But talk about a gutsy move by the top brass at Volkswagen to keep the brand alive and be able to effortlessly turn it around in just a few years.
I wouldn't be surprised if business Universities around the world when lecturing about brands are not using the Skoda deal as a casebook study of brand reinvention.
Tesco - Downmarket Retailer To The UK's Number 1 Brand
Anyone remember 25+ years back when Tesco was just another downmarket and forgettable food retailer? So much so that many Mothers, including my own, refused to shop there.
Now, for at least the last 10 years Tesco has either been the UK's most valuable brand, or in the top 3.
Can Woolworth's Be Turned Around?
Who knows. It's unlikely with the present management and business model that's for sure. But at the same time who says that with the right retail management team and some investment the Woolworth's brand and its stores cannot be reinvented.
And so this is why, for speculative investors only, the shares might be a great punt.
Risk is obviously around 6p but what about the reward? If it were to be transformed why can't the shares go to 30p, 50p or even 100p over the next 5 or so years?
