Mention Woolworth and most people picture trinket-filled variety marts offering everything from goldfish to grilled-cheese sandwiches. But the company Frank W. Woolworth started 113 years ago has left the five-and-dime business far behind. Faced with tough competition from discounters like Kmart and Wal-Mart, the chain has spent the past decade transforming itself from a colorless main-street mass merchant into one of the most versatile specialty retailers in the business. The make-over is finally paying off: after three years of lackluster performance, Woolworth’s earnings rose 59 percent in the third quarter of 1992, and brokerage-house analysts say there’s more to come (chart). The company’s stock is up about 25 percent over the past year. “The image of Woolworth as a dinosaur is gone,” says Morgan Stanley & Co. retail analyst Bruce Missett.

The beginning of the end of the dinosaur age came in the early 1970s, when massive discount stores changed the way America shops. Woolworth started its own discount chain, Woolco. But the effort proved two little, too late, and in 1983 Woolworth began shuttering its 372 Woolco stores. It closed down many of its five-and-dimes as well. Woolworth’s 40-some specialty-store formats, including Champs Sports, Afterthoughts accessories and The San Francisco Music Box Co., now account for about half its revenue, up from 29 percent in 1983. While competitors like Kmart have also moved into specialty retailing, most of their diversification comes from buying existing chains. Woolworth is unique in developing dozens of retail concepts from scratch.

Many of the concepts arise from what Woolworth chairman Harold E. Sells calls his “research-and-development laboratories”-test stores in the nation’s shopping malls. An Arkansas native who began his retailing career peddling shoes for Kinney, Sells often cruises the malls on weekends to pick up ideas for new chains. In addition, he encourages managers to suggest potential moneymakers. Once he approves a new concept, it is rolled out in five different locations, at a cost of about $200,000 each, and then tested for one year. Some are instant hits; the 18-year-old Foot Locker chain, for example, now boasts an estimated $1.6 billion in annual sales. But for every brilliant success, there are many duds. Both Face Fantasies, a bargain-priced cosmetics outlet, and Frame Scene, a retailer of prints and frames, got a quick boot after shoppers gave them the thumbs down in the 1980s. J. Brannam, a discount-apparel chain, died a similar death. “If it’s a flop they hide it from Wall Street,” says retail consultant Alan Millstein. “It’s like taking a Broadway show on the road far away from the New York critics. They bury it before anybody knows it’s a dog.”

The mix of retailers in Woolworth’s portfolio changes about as often as the blue-plate specials at its old lunch counters. Since store leases are often negotiated for periods of 10 years or more, Sells explains, it’s more profitable to change a merchandising thrust than to pay off a landlord in order to abandon an underperforming location. “If even half our ideas are successful, we know we’re going to have a lot of growth vehicles,” he says. In 1992 the company announced it would close, sell or reformat 900 of its 6,500 U.S. stores, among them 300 Kinney family shoe outlets, a women’s apparel chain called Susie’s/Sportelle and the 286-store Richman Brothers/Anderson-Little men’s and women’s apparel shops. It is also seeking a buyer for some of its slow-growing German operations.

Woolworth has not been afraid of cannibalizing its existing businesses to build new ones. Foot Locker, with more than 1,500 stores from Maine to Hawaii, has generated an entire family of spinoffs, including Kids Foot Locker, Lady Foot Locker and now World Foot Locker; while each may cut into Foot Locker’s sales, their differing formats also draw customers Foot Locker doesn’t reach. Northern Reflections, a highly successful women’s apparel chain, has spawned Northern Traditions, which sells more formal attire. At Mall of America, no fewer than 13 different Woolworth chains-none using the Woolworth name-compete for the shopper’s dollar, including three women’s accessories shops that sell almost identical merchandise.

Sells’s current goal is to expand World Foot Locker from two stores into a national chain. While Woolworth already commands an impressive share of the market for athletic shoes growth is leveling off because joggers’ closets are already packed with footwear. World Foot Locker seeks to grab a bigger piece of that mature business with flashy 10,000-square-foot stores, five times the size of conventional Foot Lockers. One third of that enormous selling space is devoted to Nike and Reebok “concept shops,” which offer 95 percent of each manufacturer’s shoes in one location. If the stores’ sheer size doesn’t draw the crowds, World Foot Locker’s conspicuous decor may. Among the featured attractions are basketball backboards and towering silver sculpted giants holding globes.

How long can the Woolworthing of America continue? Domestically, “Woolworth depends heavily on shopping malls,” says New York retail consultant Kurt Barnard. “Since conventional malls are losing traffic to strip shopping centers, they’ll have to make their stores very exciting.” Meanwhile, Woolworth is looking to overseas markets to help drive its growth. Foreign countries already account for 40 percent of the company’s sales, and free-trade agreements with Mexico and Canada bode well for earnings. In Western Europe, where the market for athletic shoes is relatively unexploited, Woolworth plans 1,000 Foot Locker stores by the end of the decade. Within eight years the company expects to have 13,000 specialty stores, doubling its revenue to $20 billion a year. What will they look like? No one knows better than chairman Sells that nothing lasts forever in the retail business. “The best predictor of our success will be our ability to change,” he says. Sooner than you think, stores like Joan Bari could be as scarce as those lunch-counter grilled-cheese sandwiches.