Allders plc

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Allders plc

Centre Tower, The Whitgift Centre
Croydon, Surrey CR9 1WE
United Kingdom
Telephone: +44-2089295500
Fax: +44-2089295505
Web site: http://www.allders.co.uk

Public Company
Founded: 1862
Employees: 7,364
Sales: £510.55 million ($732.49 million)
Stock Exchanges: London
Ticker Symbol: ADS
NAIC: 452110 Department Stores

England’s fourth largest department store group, Allders plc, operates 40 department stores under the Allders Department Store and Allders-At-Home names, with nearly three million square feet of retail floor space. The company’s 20 Allders Department Stores—located chiefly in England’s High Streets and shopping malls—feature the full complement of typical department store items, with an emphasis on furniture and home furnishings. In an attempt to expand beyond its traditional appeal to middle-income, middle-aged consumers, Allders has boosted its clothing range in the late 1990s, adding a number of fashionable brand names, including Adidas, Calvin Klein, Timberland, and DKNY, among others, but also by introducing a number of its own labels. New Allders clothing labels include Hydrogen, featuring sportswear aimed at the executive shopper, and Act3 and A-Grade, aimed at the youth fashions market. Other new Allders-owned brand names include Cooks & Co. and Episode and encompass the company’s aim to offer consumers leading-edge fashions at low prices. Most of the company’s clothing is manufactured in the United Kingdom, with some accessories and materials supplied from Hong Kong and India. Supporting its new fashion lines, Allders has launched a national advertising campaign designed to give the company a new look among consumers. In addition to its department stores, Allders has also taken a page from the American retail market by opening its own warehouse-store concept, the home furnishings specialist Allders-At-Home. Primarily located in extra-urban and “edge-of-town” commercial districts, the Allders-At-Home chain, introduced in the mid-1990s, has grown to represent nearly half of Allders’s total property portfolio. In addition to its physical stores, Allders is moving to capture a share of the Internet consumer budget, launching a full-service on-line wedding gift and registry boutique in October 2000. The company plans to expand its Internet commerce activities with two more on-line boutique sites as early as 2001. Led by CEO Harvey Lipsith, Allders, formerly part of conglomerate Hanson Plc, trades on the London Stock Exchange and posted revenues of nearly £511 in 1999. The subject of a failed acquisition attempt by larger rival House of Fraser in 1999, Allders itself approached smaller retail group Bentalls. When that acquisition fell through as well, Allders opened its £150 million war chest to purchase four stores from the struggling C&A retail group. Most observers—including Allders itself—continued to expect a consolidation of the United Kingdom’s retail industry in the face of increasing economic globalization and the rapid growth of an Internet-based economy.

Department Store Pioneer in the 19th Century

The first Allders department store was opened by Joshua Allder in Croydon, in the southeast of England, in 1862. The Allders name soon was found on other retail locations, remaining primarily in its southeast region. By the end of the 1920s, however, the Allders stores had come under the ownership of the growing retail group, United Drapery Stores, which nevertheless kept the Allders brand name for its department stores.

United Drapery Stores began a push to become the United Kingdom’s largest retail group at the end of World War II, as the British economy, spurred by the need to reconstruct after the ravages of the war, joined much of the rest of the western world for an extended period of strong growth. United Drapery Stores, later the UDS Group, began adding to its collection of retail signage, adding such store names as Claude Alexander, Richard Shops, and Fifty Shilling Tailors.

By the 1960s, UDS Group had succeeded in taking the lead as the United Kingdom’s top retailer, with a 1,300-strong empire of retail shops. The end of the postwar economic boom, which collapsed abruptly in the early 1970s after the Arab Oil Embargo, not only sent oil prices spiraling upward, but introduced an extended period of high inflation and recession that dramatically depressed the United Kingdom’s retail market, while also encouraging consumers to change their shopping and buying habits. The UDS Group, however, had been too slow in recognizing and responding to the changes in the retail market. The UDS Group soon found itself burdened by too many retail store concepts—selling everything from shoes to clothing and other goods—that proved poorly adapted to the new retail climate. As the company’s fortunes dwindled in the late 1970s, its independence was more and more threatened.

Meanwhile, the UDS Group had entered a new retail arena, that of the duty-free shop, when it acquired the license to open and operate the shop at London’s Heathrow airport. Attached to its Allders department store division, and later operated as Allders International, the UDS Group rapidly built up its network of duty-free shops around the world. By the end of the 1980s, Allders International had taken second place behind market leader Duty Free Shoppers Group Ltd. The concept of duty-free goods—exempted from import, excise, and sales taxes—proved highly successful as the numbers of international travelers booked steady increases in the late 1970s and early 1980s. A feature on many cruise ships since the 1930s, duty-free first came to international air travel at Ireland’s Shannon airport, a major refueling site for transatlantic flights. The rising rate of international travel during the 1960s and 1970s helped the duty-free shop to become commonplace not only in the world’s airports, but also in its harbors, border train stations, and other border crossings. Allders International joined in the drive to take the duty-free shop worldwide, and by the end of the 1980s, most of its duty-free revenues was generated outside of the United Kingdom and more than 75 percent was generated outside of the European Community zone.

If UDS Group saw success with its duty-free shops, the rest of its retail store empire was crumbling fast. By the early 1980s, the company was placed on the auction block. Winning the battle to take over the UDS Group was the fast-growing conglomerate Hanson Trust, led by Lord Hanson, in 1983. The Hanson Trust had by then already gained nationwide popularity for its aggressive growth. Its continued growth in the 1980s became for many the perfect illustration of Thatcher-era free market capitalism, as Hanson swallowed up not only a vast array of international companies, but also a number of the United Kingdom’s largest companies in the first half of the 1980s, including battery manufacturer Berec (later renamed as British Ever Ready), London Brick, and Imperial Group, as well as the UDS Group.

Hanson Trust’s commitment to its shareholders above all else was widely applauded in the 1980s as the conglomerate rapidly gutted its acquisitions—eliminating management, slashing pay-rolls, eliminating research & development and other “unprofitable” investments, while also selling off its acquisitions’ assets— in search of quick profits and low investments. As the decade wore on, Lord Hanson’s short-term approach to business helped him to become one of the United Kingdom’s most admired businessmen. The UDS Group was given the same treatment as Hanson’s other acquisitions of the period, as Hanson broke apart the retail empire. By the end of the 1980s, what had once been the United Kingdom’s largest retail group had been eviscerated of all but the Allders department store group and its Allders International subsidiary of duty-free shops.

Staying Afloat in the 1990s

Leading the conversion of the Hanson Trust’s retail acquisition was Harvey Lipsith, who had served as Hanson’s finance director before being placed in charge of restructuring the UDS Group into what was then renamed the Allders Group. The economic downturn at the end of the 1980s, brought on by the stock market crash of 1987 and the collapse of the building market, led Hanson Trust to join another economic trend of the decade—in 1989, the conglomerate agreed to spin off its Allders retail division in a management buyout led by Lipsith. For £150 million, Lipsith gained control of the group’s six department stores as well as its high-performance chain of duty-free shops.

Lipsith began adding more stores to the Allders chain, while also launching the Allders name on a new concept. As much of the revenues generated at the Allders department stores traditionally came through its sales of beds, oriental rugs, and other home furnishings, the company decided to turn its expertise in this market to a new retailing concept being brought over from the United States, that of the warehouse “category killer.” In 1993, Allders launched its Allders-At-Home home furnishings warehouse stores. Unlike its department stores, typically located in England’s High Street urban shopping districts, the Allders-At-Home stores joined the growing ranks of extra-urban “edge of town” retailers, attracted by the lower rents and the growing suburban consumer base. By 1993, the company operated 12 department stores and six Allders-At-Home stores.

As the worst effects of the recession began to subside in the early 1990s, Allders looked for funding to repay the debt from its management buyout and to continue its expansion. In 1993, the company went public, taking a listing on the London Stock Exchange. The initial public offering, worth £175, helped absorb the company’s debt and also gave it the capital to expand its portfolio of store properties.

Company Perspectives:

The Allders Aims: We aim to be recognised as a leader among department stores and edge-of-town retailers and build a successful and profitable business producing sustained growth for our shareholders and our people. We are constantly striving to achieve and maintain the highest standards of service to our customers, whose needs are the focus of our every activity. The people who work at Allders truly believe in what they ‘re doing and take pride in their work, so standards are exceptionally high. Customers should always feel comfortable, and are encouraged to give us feedback on both our products and service. We offer satisfaction guaranteed for all our customers—best price, best quality, best value … or your money back.

Focusing on the United Kingdom for the 21st Century

By then, Allders International was seeing the writing on the wall: the opening of the European Community’s borders in 1992 effectively removed the need for duty-free shops, since no duties were charged among member countries. By 1995, proposals were being made to eliminate the EC’s duty-free shops altogether. Despite protests from duty-free retailers and airports—which pocketed as much as 50 percent and more of store revenues—the end of the duty-free shop in the European zone was proclaimed for 1999.

Allders chose not to wait that long, and announced its intention to sell its 128-strong network of duty-free shops. First approached by SwissAir—which sought to develop its retail network, duty-free or not—Allders was quickly caught up in a bidding war, as newly privatized BAA, which held the monopoly on England’s airports, placed a bid on the Allders International operations as well and suggested that it might evict Allders International’s stores from its airports if the bid was not successful. However, after SwissAir topped the BAA bid with one worth £160 million, BAA dropped out of the bidding, and Allders International was sold to SwissAir in 1996.

Allders promptly turned over a large share of the sale to its shareholders—who also were rewarded as the stock market welcomed the “simplified” Allders—then took the rest on a buying spree. In 1996, the company bought eight stores from the Owen Owen chain for about £23 million. This purchase was followed by seven more stores, bought for £3.8 million from bankrupt furniture chain Maples, in 1997. While the former Owen Owen stores were refurbished and converted to Allders Department Stores, the Maples stores were placed under the Allders-At-Home banner. Meanwhile, the “simplified” U.K.-oriented Allders was greeted warmly by stock market analysts.

Allders continued to add new stores during 1998, including seven Allders-At-Home stores and four new Allders department stores, giving the company a total of 38 retail locations, including its Croydon flagship—and largest—store. In 1998, the company also stepped up an effort to rejuvenate its image among shoppers, started in 1997 with the launch of its first private label, A3. In 1998, Allders launched a second label, A-Grade, and announced plans to roll out more labels, including the plus-sized range, Anagram, and the Hydrogen range of “executive” sportswear. These brand rollouts were accompanied by the introduction of a new variety of popular fashion labels in the Allders Department Stores, as the company brought in such brand names as DKNY, Calvin Klein, Timber-land, Adidas, and others.

Allders nearly gave up its independence in 1999, however. In May of that year, the company announced that it had entered—and broken off—talks with House of Fraser that would have seen the larger retailer acquire Allders Plc. After House of Fraser’s stock slipped, the two companies ended their acquisition discussion, while reserving the possibility of reaching agreement in the future. Both companies agreed that the United Kingdom’s retail industry, challenged by increasing numbers of discounters on one end and the blossoming of Internet-based commerce on the other, was ripe for consolidation.

Mid-sized Allders admitted that in the coming consolidation it could easily be prey for its larger competitors or predator itself for its smaller rivals. Indeed, in the first half of 2000, the company showed its predator side, announcing that it had amassed a war chest of some £100 million. The company appeared ready to take its war chest on the war path, when it made acquisition overtures to the Bentalls chain of eight department store. Those talks ended without success, however.

In August 2000, Allders made a deal with real estate and building group Minerva to sell its flagship Croydon store and lease a new, larger store in a new shopping center. The sale netted Allders some £50 million, a portion of which the company promptly spent, buying up four department stores from the C&A store chain in October 2000. At the same time, Allders moved to stake a position in the growing Internet-based retail scene, opening its first full-scale commercial web site. The site, devoted to wedding registry and gift sales, was expected to be joined by two more commercial sites in the year 2001. Nonetheless, the company continued to assert that consolidation in its sector was inevitable; it remained to be seen whether the Allders name would be able to ride out the coming consolidation wave.

Principal Competitors

Arcadia Group plc; ASDA Group Limited; Debenhams plc; The Great Universal Stores plc; House of Fraser plc; James Beattie plc; John Lewis Partnership plc; Marks and Spencer plc; Matalan plc; N Brown Group plc; Next plc; Selfridges Plc; Storehouse plc.

Key Dates:

1862:: Joshua Allder opens first department store.
1927:: United Drapery Stores (UDS) acquires Allders.
1974:: Company launches Allders International duty-free store division.
1983:: UDS is acquired by Hanson Trust.
1989:: Allders is spun off in management buyout.
1992:: Allders-At-Home stores debut.
1993:: Allders goes public on London Stock Exchange.
1996:: Company sells off Allders International, and buys eight Owen Owen stores.
1997:: The A3 private label is launched.
1998:: Company acquires 11 new stores; launches A-Grade and other private labels.
1999:: Acquisition by House of Fraser fails.
2000:: Company fails in attempt to acquire Bentalls; buys four stores from C&A; launches on-line wedding gifts site.