Viewpoint: Is the Co-Op the new Woolworths?

Kieran Maguire is an Economics, Finance and Accounting Lecturer in the University of Liverpool’s Management School

“The Co-Operative bank has just revealed losses of £1.3 billion, and the famous institution, built on the Rochdale principles of democracy and anti-discrimination, appears at war with itself.

How did this mess arise?

Banking

Problems started when the Co-Op bought the Britannia Building Society in 2009, but didn’t do its homework when looking at the Britannia’s finances. It acquired a business that contained huge bad debts, which dragged the parent down to such an extent that the Co-Op bank revealed a £1.5 billion hole in its finances.

The Co-Op, which used to own 100% of the bank, could not plug the gap itself, and so sold 70% of the bank to venture capital firms. A further £400 million is now needed at the bank due to further losses.

Further revelations that it mis-sold its customers PPI cover, costing at least £100 million in compensation, and an IT system so antiquated it couldn’t even count the number of days in the year increased the embarrassment.

Whilst all this was happening the Co-Op was building One Angel Square, a £100 million new HQ in Manchester, the greenest building in the world.

Part of the problem was the way in which the Co-Op is managed. A 21 strong board of directors, elected by activists, and containing well-meaning amateurs did not possess the experience to deal with the rapid world of banking.

The Co-Op Bank’s former chairman, the Reverend Flowers admitted he knew little about banking, and was unable to say how much the bank’s assets were worth.

Groceries

The Co-Op grocery business is the fifth largest in the country, but has struggled in recent years. The takeover of the already ailing Somerfield chain in 2008 for £1.57 billion has not had a positive impact otherwise. A recent report in Which? Magazine put the Co-Op at the very bottom of the table when rating grocery stores. High prices, poor fresh food and lack of choice was a fairly damning indictment of the way it has been run.

Travel Agency

The Co-Op travel agency has been long established on the high street, but with more and more holidaymakers booking online it has seen its customer numbers fall.

Summary

Many people, especially those in the North West who are familiar with the history and heritage of the Co-Op movement, are very fond of the nature of the institution.

The nature of the way the Co-Op is managed on a local basis may prevent it being the Woolworth’s of this decade, a place of happy memories but little reason to visit, but no one can be too sure.