Woolworth Grows From Its Dime-Store Roots : Retailing: While some department store chains are floundering, this century-old chain is building a collection of specialty stores.

For many shoppers, stepping into a Woolworth store is like passing through a time tunnel and entering a cozy and dependable world.

Cramped aisles display the kind of inexpensive candies, sponges and note pads that have been sold for a century at Woolworth stores around the country. Many of the outlets still house the familiar luncheonettes serving coffee, sodas and hamburgers.

Such consistency has bred generations of loyal shoppers, who have been weaned on Woolworth’s historic image as a surviving five-and-dime store, the kind of operation where the incidentals of life can be purchased at low prices.

“Wherever I’ve lived, there was always a Woolworth’s,” said Wilma Roman, a dental assistant from Riverdale, N.Y., who spent a recent lunch hour filling a basket with items from a mid-town Manhattan Woolworth store. “I can buy all my bathroom and kitchen needs here. I’ve been shopping here for years.”

Despite repeat business, Woolworth Corp. isn’t betting its future on variety stores, many of which are dowdy and yielding fewer profits.

Thanks to aggressive experimenting and a few select acquisitions, Woolworth actually makes more money by running a multitude of specialty chains--stores selling shoes, sneakers, women’s clothing, sportswear, costume jewelry and party doodads.

The New York-based retailer oversees 43 chains numbering 8,000 outlets worldwide, although fewer than 1,700 are variety stores. They boast names such as Kinney Shoes, Foot Locker, Kids Mart, Susie’s, Afterthoughts and Athletic X-Press. Consumers would never know that they belong to Woolworth.

Recently, the company created Woolworth Express, a miniature version of the variety store that sells only items with high profit margins. Like many of its other chains, Woolworth Express is being expanded with Woolworth’s own funds.

Woolworth’s success contrasts with other retailers losing money or sagging under debt. From the brink of bankruptcy in the early 1980s--when the company closed hundreds of unprofitable variety stores operated under its Woolco alter ego--Woolworth has used specialty chains to expand into an $8.1-billion behemoth.

In the process, Woolworth has become America’s most diversified retailer.

“We’re in a world of evolving merchandising,” said Harold E. Sells, Woolworth’s chairman and chief executive, in a recent interview in the company’s 76-year-old headquarters in lower Manhattan, once known as the Cathedral of Commerce, thanks to its gothic-style architecture.

“Each year, new things pop up that we didn’t even think of years ago. It’s never-ending,” said Sells, who began his career in 1945 as a Kinney shoe salesman in Fort Smith, Ark. “Ten years from today, there’ll be whole new fields to explore.”

The willingness to explore has made Woolworth a Wall Street favorite. The merchandise mix and scattered store sites--including West Germany and Australia--help to weather economic downturns. Attentive investors have pumped up the stock nearly 35% in the past year, and sometimes fueled takeover talk.

Woolworth’s make-over began in earnest in 1982, when management decided to close nearly 400 Woolco stores in the United States. (Woolco still operates in Canada.)

“Imagine closing a $1-billion business?” said Howard Davidowitz, a New York-based retailing consultant. “A lot of people thought Woolworth would never survive.”

Certainly, there was precedent for Woolworth’s gambit. Years earlier, Woolworth had acquired Kinney Shoes and Richman, a clothing chain. Both helped provide the expertise needed to guide other highly focused efforts.

And Woolworth executives recalled the success of Foot Locker, their 1974 experiment with sneakers that today numbers more than 1,000 stores and even spawned two of its own spin-offs--Lady Foot Locker and Kids Foot Locker.

It also helps that Woolworth managers knew their way around commercial real estate, and were trying to change the company just as downtown shopping districts were yielding to the growing number of suburban shopping malls.

Woolworth made itself a desirable tenant by opening several of its different specialty stores in malls. The strategy provided important leverage with developers and allowed the company to test new concepts.

“The malls are our laboratories,” Sells said. With roughly 1,500 major shopping malls around the country, Woolworth has a large number of locations in which to try new ideas.

“The customer is the judge,” Sells said. “If one (idea for a new store) doesn’t work, we’ll close it up and go on to something else.”

The company’s flexibility can help Woolworth find workable strategies even as its venerable Kinney chain suffers sluggish sales and concern mounts that sneakers are a maturing market.

“They have an enormous challenge because variety stores aren’t that profitable,” Davidowitz said. “If Kinney and Foot Locker get sick, they’d be in big trouble. So they’re trying almost everything.”

Sells stressed that Woolworth isn’t waiting for disasters. New ideas are dreamed up either by the chairman’s group of top five officials or by division presidents, who are encouraged to think like entrepreneurs. He hopes to have 60 different chains by 1995.

Not all ideas work. The company is giving up on two unprofitable concepts: Frame Scene, which sells picture frames, and Face Fantasies, a cosmetics store.

Meanwhile, Woolworth Express is being heralded as the Woolworth of the future, because the profitability of the older variety stores is waning and leases are expiring. In 10 years, the older chain will drop to 800 stores in the United States from today’s 1,100.

Woolworth expects to expand the current 20 or so Express stores to 1,000 in the same period. Some will open in rejuvenated downtowns, but most will be in malls.

Why? “It’s a matter of economics,” Sells said. The older stores produce $110 in sales per square foot, on average, versus $275 in the Express outlets.

“If you can’t get more than $200 in sales per square foot” in a mall, Sells said, “Any new venture can’t make money.”