Halpern legacy still burdens his successor
Sunday 30 January 1994
One decision in particular - to launch the Principles men and women's fashion chain - is so far defying the management medicine of John Hoerner, the burly American hired to sort out the group when institutional shareholders lost patience with Sir Ralph's successor, Lawrence Cooklin.
There is broad agreement that Mr Hoerner has done much to turn round the group's Debenhams department stores. But as the second anniversary of his appointment ticks round on 12 February, he is still wrestling with problems at Principles and other Burton high- street names that even his most loyal supporters concede will take a long time to overcome. Heads may roll in middle management as Mr Hoerner fights for his own life at Burton's helm.
Time may not be on his side. The latest crop of big shareholders - including Schroders, Robert Fleming and Mercury Asset Management, which alone has a 22 per cent stake, - are reliably understood to be becoming restive; Burton shares have fallen by around 30p from their 1993/4 high of 88p.
It is less than a year since Mr Hoerner persuaded the City to support a pounds 163m rights issue at 60p a share, underwritten by SG Warburg and backed by brokers Cazenove and de Zoete & Bevan. Last summer, when Fleming was buying heavily, all looked well. And last month it was revealed that Mr Hoerner's pay had risen from pounds 325,000 to pounds 624,000, including a pounds 171,000 bonus, after the group recovered from an pounds 800,000 loss to profits of pounds 18.5m.
But Sir John Hoskyns, the chairman, had to confess to shareholders at the annual meeting on Thursday that sales for the 21 weeks to 22 January were no better than the same period a year before. However, that flat trading statement concealed a number of embarrassing troughs - chief among them severe problems at the Top Shop, Top Man and Principles chains.
The biggest headache seems to be at Principles, the fashion shops that Sir Ralph conceived as a me-too answer to the rocketing success of Next, which had been invented and led by the flamboyant George Davies. When Mr Davies spun off Next for Men, Sir Ralph came up with Principles for Men.
But Next ditched Mr Davies and has been adroitly turned round by his former lieutenant, David Jones. Store layouts have been revamped, and gaps in the range quietly filled. Meanwhile, Principles languishes, unloved by a new generation of women who were still at school when Sir Ralph was chasing the now-overweight model, Fiona Wright, round his office.
'The sad truth is that Principles has never made any money, except for short periods,' said one source close to Burton. 'Its sales densities are too low and its rents are too high.'
As if the competition from Next were not enough, Marks and Spencer has been making a determined bid for the market in classic women's clothes.
This has coincided with a spell when Burton has come under increased pressure from the rising cost of imports. The company buys more of its clothing from abroad than Next or M&S but staved off the immediate effect of the post-ERM sterling devaluation by buying currency in the futures market. However, those forward contracts have run out, exposing it to the full impact of dearer imports.
'Next has one chain, one brand, one vision,' pointed out Paul Morris, retail analyst at Goldman Sachs, 'while Principles was badly conceived, badly positioned and has never got the value-quality equation right. Hoerner has done an excellent job with Debenhams, but he is finding the multiples a different animal.'
Burton's apologists claim that Mr Hoerner has done the hard work, revamping the merchandise and the shops, and it is now a question of waiting for public perceptions to catch up.
Hard-to-shift clothing has been shifted by borrowing the US idea of piling it up in new chains like EX and IS, designated for the purpose. But until the young careerists start buying clothes again, it is difficult to see how profits can return to the pounds 234m they touched in 1989. Last week, analysts downgraded their 1994 forecasts from pounds 60m to around pounds 40m.
Diving in at the deep end is no excuse for shirking the style stakes
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