MFI put 12 per cent of its workforce on notice yesterday after warning 1,470 job cuts were needed to underpin its recovery plan as it retreats from manufacturing and shuts stores.
The employees in the firing line are paying the price for the failed strategy of John Hancock, who was eventually sacked as chief executive last October after presiding over the near collapse of the struggling furniture retailer. Yesterday it emerged Mr Hancock is in line to receive £1.4m this year, including a payoff of £612,000 and paper gains on his share options.
Meanwhile employees lucky enough to remain in a job are likely to see the amount they save for their pensions soar after MFI became the latest company to switch from a final-salary scheme to one based on career average earnings. It will spend £35m on reducing its £182m pension deficit this year, it said.
The group intends to shut two factories, in Scunthorpe and Stockton-on-Tees, three of its eight delivery depots, 11 of its 195 stores and sell its Sofa Workshop chain in the hope it can resuscitate its profits after crashing to a £110.8m loss during the past 12 months.
Matthew Ingle, the new chief executive, said its UK retail chain was still under review, paving the way for further store closures. Since taking over in October he has sold off overseas businesses, such as its French arm, Hyena, to focus on the UK.
He sought to quash persistent speculation that the group could sell off its profitable trade arm, Howdens, despite announcing plans to split the group into three divisions, which analysts said could make it easier to break up the group. "I'm not looking at it that way at all," he said.
The group's retail, trade and supply divisions will all be run separately, which Mr Ingle hopes will introduce some much-needed accountability into a business that has gone backwards for the past few years.
Although the City appeared prepared to give the management team the benefit of the doubt, marking shares in MFI 2.25p higher to 91.75p, many analysts felt the turnaround proposals did not go far enough.
Critics said the plans to slim down and focus on kitchens and bathrooms, and stop making products from electric cookers to kitchen cupboard doors in-house, amounted to a series of strategic U-turns. As did its decision to shut its regional distribution centres in favour of a more localised approach.
Analysts are not expecting the retail business, which made a loss of £180m last year including £95m of exceptional charges, to make a profit for at least three years. The group said its restructuring would cost £34m this year, plus a further £12m in related fees. It is writing off assets worth £36m and hopes the measures will reap annualised benefits of £23m from next year.