How Discounters Succeed in Tough Times: The Poundlands Case

September 1, 2010

Discount retail stores thrive in tough times.  Poundlands seems to be a good example. The firm is planning to create 2000 jobs and open 50 new stores to augment its 250 existing ones, many being installed in former Woolworths premises.

According to the BBC

Discount retailer Poundland posted annual operating profits [August 17th 2010] up 81% to £21.5m, on turnover up 28.7% to £509.8m. Jim McCarthy, chief executive, called the results “impressive” and promised further profits growth and expansion. He said: “With the economic uncertainty continuing, we are seeing many more first time shoppers joining our… customer base and with this trend set to continue, I remain confident of our prospects for the current financial year.”  Poundland employs more than 7,500 staff, and created about 2,000 full- and part-time jobs during the financial year ending in March 2010.

The firm, based at Willenhall, West Midlands, opened 56 outlets during the last financial year, many of which are based at former Woolworths stores.   The chain, owned by the private equity company Warburg Pincus, is gradually increasing the average size of its stores, and also stocking more branded items and food.

An interesting point is the way in which a smaller more dynamic firm is able to react in potentially difficult times. Woolworths, which might have been able to follow a similar strategy failed to survive the credit crisis, and became an opportunity seized by Poundland.


Tesco: Continuity in Leadership, but what about Strategy?

June 11, 2010


When the internal candidate Philip Clarke replaced Sir Terry Leahy [left] as head of Tesco, The first reports were almost exclusively focused on the departing leader rather than on the arriving one

The lament was understandable.

Profits, dividends and earnings per share doubled and then doubled again during Sir Terry Leahy’s 14‑year tenure. It works out at a compound annual growth rate of 10%. Very few large companies improve these measures at double-digit pace for a decade and a half without blowing up at some point.

Part of the secret, you suspect, is that long [leadership] reigns have always been part of Tesco’s culture. As every football follower knows, changing managers frequently is a losing strategy. Leahy is only the fifth chief executive of Tesco since the company was formed in 1929. He has seen four chief executives at both Sainsbury’s and at Asda [UK arm of Walmart] during his time at the top.

Praise from his predecessor

Within hours of the announcement, [June 8th 2010] Lord McLauren, Leahey’s predecessor, was on BBC’s Five Live lunchtime radio programme. He gave a glowing account of Leahy’s efforts and the merits of another internal appointment ‘from the Tesco family’. On being pressed, he added he had drawn up a private short-list of three internal candidates, and that Philip Clarke was ‘up there at the top’. He refused (naturally) to name the other two executives.

The endorsement ended abruptly when the interviewer suggested that Sir Terry may have eclipsed Lord McLauren’s leadership contributions.

“Didn’t eclipse me at all” he growled “he built on the successful company I established … and Phil will build on what Terry has accomplished” [quoted from memory].

Other BBC eulogies followed
:

Under Sir Terry, Tesco led the way in offering banking services and introducing the Clubcard, the store card that has been copied right across the High Street. He has also overseen the store’s expansion [overseas]. The company now employs almost half a million staff worldwide, with stores in China, the Czech Republic, Hungary, Japan, Malaysia, Poland, the Republic of Ireland, Slovakia, South Korea, Thailand, Turkey and the US.

Enter Philip Clarke

Philip Clarke said he was “honoured and delighted” to succeed Sir Terry. Mr Clarke has worked for Tesco for many years and joined the board in 1998. He had held responsibility for the supermarket’s Asian and European operations, as well as for IT.

The Guardian was quick to provide an informed account of Philip Clarke and the challenges he was facing:

Clarke, who has been on the Tesco board since 1998, was judged one of the frontrunners to replace Leahy. The son of a Tesco store manager in the Wirral he has reached the top rung 36 years after he did his first shelf-stacking shift for the supermarket as a schoolboy.
Analysts said that the biggest challenge in Clarke’s inbox come next year [2011] would be deciding what route to take with its loss-making US arm Fresh & Easy which is run by Tim Mason, who was also promoted to deputy chief executive. Fresh & Easy made a loss of £165m on sales of £354m last year and outgoing boss Sir Terry Leahy hinted at its annual results in April that its scope might be “hundreds” rather than the “thousands” of stores first envisaged when it was launched in 2007.

“Pile ‘em high ….?”

Tesco’s diversification both geographically and in product offerings has become a model for Business School study. Will the one-time local retailer get back to its original ambitions in America with the less than successful Fresh and Easy chain? Will it become more involved in the challenges of the financial sector? Will continuity in selection of a leader be followed by continuity of strategy? Whatever happens, the firm has come a long way from its original “pile ‘em high” philosophy.


Stuart Rose and the Beethoven Effect

July 9, 2009

Beethoven

Beethoven

When Napoleon took on wider powers, Beethoven rejected his onetime idol. Is Stuart Rose getting the Beethoven treatment at Marks and Spencer?

Stuart Rose has won the acclaim of ordinary shareholders and institutional investors alike as CEO of Marks and Spencers. But his move to take on the powers of Chairman and Chief Executive has not been so widely approved. Is this a modern-day Beethoven effect?

Music lovers are brought up on the tale of Beethoven’s admiration of Napoleon and how it turned to wrath when Napoleon declared himself Emperor of France.

A work originally entitled “Bonaparte Symphony” … was renamed when Bonaparte crowned himself emperor, a move which angered Beethoven. As legend has it, the composer ripped through the title page and later renamed the symphony the Eroica, refusing to dedicate one of his pieces to the man he now considered a “tyrant”.

When Business Leaders fall …

The fall of a Business Leader can also be accompanied by a rapid flip ‘from hero to zero’ , as many case examples in LWD have illustrated. Recently a spate of examples accompanied the fall of failed financial executives such as Fred Goodwin.

The hero-to-zero effect in some ways is a throwback to the days of The Great Leader, a period during which charismatic personality was believed to be the driving force behind transformational change.

The Governance Issue

There has been uneasiness about the joint role since last year’s AGM. However, despite continued turbulent times in the retail sector, Sir Stuart’s track-record as entrepreneurial leader remains relatively intact.

At this week’s AGM he retained considerable support, although the Governance issue will not go away.

Sir Stuart has been under pressure from institutional investors for more than a year over the board’s controversial decision to allow him to hold the roles of chairman and chief executive, which is against best corporate governance.
[One] said if Sir Stuart were to stand down early as chairman, he should consider leaving the board altogether. Sir Stuart’s urbane response was to say he was “a servant of the board. If they wish me to stay I will be here until the latest July 2011.”
The Universities Superannuation Scheme called for Sir David Michels, deputy chairman and senior independent director to be made chairman at least on an interim basis. “If Sir David would become the chairman, and I would become the chief executive, it’s moving . . . back to the past,” Sir Stuart replied. And while Sir Stuart could charm the audience, he could not escape the words of Councillor Ian Greenwood, urging support for a motion for him to hand back [the Chairmanship] “Whatever happens we are not going away.”

The Wider Issues

Students of leadership will recognise the wider issues implied in the ongoing story of Sir Stuart Rose’s leadership. At one level there is the technical matter of corporate governanace. At another level these is the process through which a powerful leader appears to seize greater powers ‘in the interests of the company or country’.

In other words, the Beethoven effect.

Acknowledgement

Close examination of the Beethoven image reveals it to be an ironic comment on the great man’s coiffure, to be found on a blogpost by Charlie White


Woolworths woes continue

August 17, 2008


Troubles come not singly but in battalions. The adage might be applied to Woolworths at present as it faces financial decline, a hostile take-over bid, and a new leader due to arrive next month

In June, [2008] Leaders we deserve reported on the enthusiasm with which Mr Trevor Bish-Jones took his golden handshake and departed the company.

Since then, the company has seen further deterioration in its trading position reported in July

The replacement for Mr Bish-Jones former Focus DIY chief executive Steve Johnson was recently announced as joining the firm in September

But before Mr. Johnson could get his feet under the table, the company faced its latest challenge in the shape of a takeover bid. Which it promptly rejected.

Troubled retailer Woolworths says it has rejected a bid for its network of 815 stores, calling it “unacceptable”.
Woolworths confirmed reports that the boss of the Iceland frozen food chain, Malcolm Walker, had made an offer to buy its retail division.
However, the company’s board said the proposal undervalued its assets and involved a complex restructuring, which was not achievable.

What happens next?

In the various posts on leadership reported here, there have been a number of stories of takeover attempts. The case for takeover is easier to make if the target company is demonstrating leadership problems together with financial difficulties.

The arrival of a new leader may help signal a fresh approach. It worked magnificently in the famous case of Stuart Rose arriving at Marks and Spencer to thwart to attention of predator Philip Green.

Will the arrival of Steve Johnson increase the survival chances for Woolworths in its present form? In the M&S case, Rose quickly helped put an imaginative new strategy in place.

Maybe Mr. Johnson will also provide creative leadership at a time of Corporate crisis. The initial statement from Woolworths (according to the BBC) suggests that such a possibility is the hope of the organization.

Mr Johnson said he would be focusing on “value creation for all stakeholders” when he joins the firm in September.

The retailer said it was “delighted” that Mr Johnson was joining the company.
“His strong background in both retail and consultancy, together with his particular experience in achieving a turnaround at Focus, he brings the strategic and operational skills that the Group needs to help it move to the next stage of its development.”

But what will happen between now and September? Will the battalion of its woes be successfully kept at bay?


Paul Walsh defends Diageo’s social responsibility

July 29, 2008

Paul Walsh, chief executive of the world’s biggest drinks company, defends Diageo’s social responsibility policies

In a wide-ranging video interview with BBC’s Robert Peston, [July 28th 2008] Paul Walsh examines the social responsibility policies of Diageo, and provides a glimpse of his leadership style.

The loyalty of a lifer

Mr Walsh is one of a disappearing breed, a corporate lifer in the fashion of Henry (Hank) McKinnell of Pfizer. His tenure as CEO is also substantially beyond that of current norms. In this interview, he did not appear to be under pressure to justify his belief in the social responsibility of his company. The question was framed around public debate in Great Britain on the vexed issues of underage drinking and its social consequences.

Not in the witness box but bearing witness

On this matter, as elsewhere during the interview, Mr Walsh was not so much in the witness box, as someone bearing witness, given an opportunity to share his personal faith in the company and its values. This is a claim that comes more easily to the corporate lifer, whose commitment has been demonstrated by decades of loyalty.

Diageo? Most of us (including many financial commentators) still refer to Diageo by its centuries-old earlier name Guinness. You can see the attraction of moving to a name that avoids preserving an image of a single-product company. The brand shift occurred at a time when creativity in branding seemed to have been at a low ebb, and when rebranding decisions tended to favour the Rorsachean over the impactful and memorable. But that’s another story.

Admitting a mistake

Watch out for how Walsh deals with a recent commercial decision. ‘We got it wrong .. we listened .. we put it right’. Walsh seems quite relaxed and invulnerable to the risks of revealing something about himself or his company.

The boys with the black stuff

Some years ago, when the company was known as Guinness, spent some time working with its marketing and corporate managers in several different countries. In those days, the culture was a remarkably coherent one. In Ireland, the job as ‘Guinness rep’ brought high social status. The parish priest was not unknown to use his pulpit to mention job vacancies in the company. But arguably, the strong and dominant image of Guinness was beginning to restrict strategic transformation.

Success was recognized through hard-won achievements as the ‘boys with the blackstuff’ spread the word and the product as successfully as their Christian brothers around the world.

But transformation to a global force has not been accompanied with the replacement of leaders who put financial ratios above the products which have been the lifeblood of the organization.

Facing the media

Robert Peston has argued that business leaders are too reluctant to put themselves forwards for public scrutiny.

In this interview he demonstrates again his claims that such exposure is desirable and valuable for the corporation.

The Need for Creative Ideas

However strong its leader, Diageo faces problems of social responsibility raised at the interview. The firm will need more than good image management to strengthen its global brand. Creative ideas will be a necessary part of the product mix.


M&S shareholders resist Chairman Rose

July 8, 2008

Big Investors at M&S are upset over Stuart Rose being given combined roles of chief executive and executive chairman. Shares have plummeted after the retailer revealed a drop in annual like-for-like sales. Rose anticipates two tough years ahead

In advance of the general meeting [Wednesday, July 9th 2008] City rumours pointed to two big investment funds (Schroders and Legal & General) as leading a shareholder rebellion.

Stuart Rose

As a corporate leader Rose ticks all the boxes. He came in to M&S as a white knight to protect the decline in the company’s fortunes, which had attracted unwelcome advances from the buccaneering Philip Green. In a few years he has justified the rejection of Green’s offer, with a turnaround in trading figures, and climb in share-price.

He was increasingly noted as a role model of a dynamic business leader. A recent award from The World Leadership Forum was based on a poll of chief executives of nearly a thousand British businesses. The clear winner was Stuart Rose.

Malcolm Turner, President of the World Leadership Forum said:

“We are delighted to announce that Stuart Rose is the winner of our Business Leader of the Year Award. He is plainly Britain’s most admired businessman, having dramatically improved Marks & Spencer’s fortunes while operating in a notoriously competitive and fickle market. We organised this award because we think that recent television programmes such as ‘The Apprentice’, or ‘Trouble at the Top’, bear little relation to the reality of corporate life. Worse still they often give young people, at the outset of their careers, an image of business which is inaccurate and damaging. We believe that highlighting the work of the best business leaders, and the best management practice, will pay dividends to the wider business world and give young people a less distorted view of commerce.”

Appointed Chief Executive in May 2004, Stuart Rose first joined Marks & Spencer in 1972. He moved to the Burton Group in 1989, becoming Chief Executive of the Multiples Division in 1994. He joined Argos plc in 1997 as Chief Executive to defend the takeover bid from GUS. He then became Chief Executive of Booker plc, which merged with Iceland plc in 2000. He joined Arcadia Group plc as Chief Executive and left in 2002 following its acquisition.

I’ve blogged on Rose a bit, but not in detail. In general he has avoided the leadership pitfalls that have been examined in Leaders we deserve.

Robert Peston neatly skewers British business leaders for avoiding the risks of exposure in tough media interviews. Stuart Rose has been an exception to the general point being made by Peston. He projects calm, thoughtfulness, and a capacity to hold on the practicalities of a story while retaining a sense of long-term corporate objectives.

But then things started turning nasty

In April [2008] Leaders we deserve reported on the decision by M&S to appoint Sir Stuart to the dual roles of CEO and Chairman. We picked up the possible problems of governance involved. The message released by outgoing Chairman Lord Burns suggested that the company was anticipating problems from its shareholders.

He was to be proved right

The reactions were largely negative, although comments suggested that the institutional shareholders might want to find some way of expressing displeasure that fell short of censoring Lord Burns or Stuart Rose.

What’s going on?

My question as the company faces pressure from its shareholders is: what’s going on?

We could assume that the institutional shareholders are motivated by concerns over corporate social responsibilities. If the customary city mindset still holds, that only seems likely where CRS aligns with self-interest.

In other words, the real goals of the shareholders are wrapped up in the rhetoric of CSR.

In which case, this another game of strategic chess.

‘We like you as a leader, Sir Stuart, but not if you weaken our influence over decisions you might make which might damage our investment value in M&S in the short as well as the long term’.

Before the battle

A day before the battle, M&S shares had slumped and then rallied slightly in modest levels of trading.