Bhs plc

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Bhs plc

Marylebone House
129-137 Marylebone Road
London NW1 5QD
England
(171) 262-3456
Fax: (171) 262-4740

Wholly Owned Subsidiary of Storehouse plc
Incorporated: 1933
Employees: 14,000
Sales: £749 million (1996)
SICs: 5311 Department Stores; 5621 Women’s Clothing Stores; 5611 Men’s & Boys’ Clothing Stores; 5712 Furniture Stores

Known for more than 50 years as British Home Stores, Bhs pic ranks among the United Kingdom’s largest department store chains. Since its foundation in the late 1920s, this company has haltingly evolved from a variety store focused exclusively on price into a department store with a strong emphasis on apparel. Bhs’s 186 outlets (135 company-owned and 51 franchised) carry clothing (mostly womenswear), house wares, and gift-ware. Many units also feature a restaurant, coffee house, or sandwich shop. The business is a subsidiary of Storehouse pic, a holding company whose operations include maternity and infant goods retailer Mothercare UK Ltd. Led by Keith Edelman, who was also CEO of Storehouse, Bhs enjoyed steadily rising pretax profits in the early 1990s.

Creation and Development

British Home Stores was founded in 1928 by a group of American entrepreneurs. These businessmen modeled their two initial London stores after Wool worth’s, which carried no goods that retailed for more than sixpence (ten cents in the United States). So as not to compete directly with its successful predecessor, British Home Stores set its price ceiling a bit higher, at one shilling (double that of Wool worth’s). By raising the bar to five shillings in 1929, British Home Stores was able to offer a wider variety of home furnishings, including drapery. Most of the budding chain’s locations featured small cafeterias and grocery departments as well. During the interwar period, the company developed several lines of own-label merchandise, including “Twinkle” brand infantswear, “Travair” luggage, and “Request” foods. The chain went public in 1933.

In the postwar era, British Home Stores shifted its strategy from selling strictly on price to focusing more broadly on offering “quality and value for money.” The chain adopted the “Prova” brand to designate BHS exclusives in 1960. By the end of that decade, the company employed more than 12,000 and boasted 94 stores nationwide.

British Home Stores continued to distinguish itself from variety stores like Wool worth’s over the course of the 1970s by continuously broadening its apparel and house wares lines. The company also formed a joint venture with British supermarket giant J. Sainsbury Ltd. to create a chain of SavaCentre “hypermarkets” (giant supermarkets) during the decade. By the end of the 1970s, BHS had made the transition: it was considered more of a department store, à la Marks & Spencer, than a variety store, like Woolworth’s. The Accountant characterized British Home Stores as a “strong and efficient” chain in 1980 and compared its earnings growth favorably to market leader Marks & Spencer. In fact, the company’s annual revenues had increased from £161.8 million in 1975 to £366.4 million, and its net income before taxes rose from £18.6 million to £41.8 million during that same period.

Gary Warnaby, who examined British Home Stores’ history in the early 1990s, asserted, “BHS’s advances in trading profit had been due as much to cost containment as to sales growth.” Over the course of the 1970s, the chain had only added a net of 30 locations. Indeed, the chain’s “back-office” functions—distribution, data processing, etcetera—were highly praised for their efficiency. Some observers, both contemporary and retrospective, noted that despite its apparent strengths, BHS lacked the panache of its department store competitors. Next to Marks & Spencer, British Home Stores was described as “drab” and “dowdy.”

Early 1980s Recession Leads to Merger with Habitat/Mothercare

Such criticism came to fruition in the early 1980s, when a global recession bruised the bottom line at many major retailers. In an effort to upgrade its image and increase its sales, British Home Stores consulted with designers at Conran Associates to revamp its merchandise and retail environment. The chain unveiled its first remodeling project late in 1982. The new layout traded in supermarket-style aisles for a curvier, more open floor plan. British Home Stores also continued to add higher-priced goods while working to retain its focus on value.

Perhaps as an outgrowth of its contact with Conran Associates, British Home Stores merged with Sir Terence Conran’s Habitat/Mothercare pic in 1986. Widely known as the most important arbiter of postwar Britons’ taste in home furnishings, Conran was knighted “for services to British design and industry” in 1983. British Home Stores was one of a succession of acquisitions that transformed Conran’s chain of Habitat stores from a £67.2 million company into an international retail federation with more than £1 billion in annual sales. Storehouse pic, a holding company, was formed to manage Conran’s growing family of companies, which included seven retail outfits and more than six million square feet of selling space. Although all of the chains operated independently, Storehouse CEO Conran hoped that the merger would generate synergies among its primary constituents.

To that end, British Home Stores began to undergo a process of “Conranization,” targeting younger customers with updated stores, trendier fashions, and a revitalized corporate image. Sixteen-year BHS veteran Denis Cassidy, who had been appointed CEO of British Home Stores in 1985, became deputy chairman and group managing director of Storehouse in 1986 and advanced to chairman and CEO of BHS in 1987. The parent company chipped in £8.5 million (US 12.6 million) in addition to the chain’s existing £50 million modernization program. Before the year was out, British Home Stores had shuttered its 56 food departments and adopted a new logo featuring the “flying h”: a lowercase swoop of a letter sandwiched between the uppercase “B” and “S.” (A second round of changes would make the “s” lowercase as well.) An increased advertising budget promoted the new “Bhs.”

These efforts proved to be in vain, however, as the British retail environment went into another tailspin at the end of the decade. Forbes’s Jeffrey Ferry characterized the Bhs revamp as “disastrous,” noting that Storehouse’s attempt to appeal to a young, upper-class clientele alienated Bhs’s traditional core of mature, budget-conscious customers. In a 1994 interview for Britain’s Marketing magazine, Bhs executive Helena Packshaw noted, “Customers knew Bhs had changed in the late ‘80s but they didn’t know what we’d become.” By mid-1987, even the visionary Conran was ready to decouple Storehouse’s disparate interests. Over the span of just a few months, the holding company endured two takeover threats and the October 1987 stock market crash. Top Bhs executive Denis Cassidy resigned in frustration. From 1987 to 1989, group pretax profits dropped from £130 million to £11.3 million, and in 1988, Storehouse’s board of directors asked Conran to step aside and accept a titular chairmanship. He resigned in 1990.

Although Bhs and its parent endured a high rate of turnover in the chief executive’s offices during the late 1980s and early 1990s, the group benefited from a program of retrenchment. Under the de facto direction of Michael Julien from 1988 to 1992, Storehouse decided to restrict its operations to Bhs, which brought in the most revenues, and Mothercare UK, whose focus on maternity and early childhood remained rather unique. Although these two chains were quite different from one another, they were linked in their common target customer: women and their families. In 1989, American David Dworkin, a former executive at Neiman Marcus, Bonwit Teller, and other upscale department store chains, became CEO and chairman of Bhs. Dworkin brought with him U.S.-made clothing and merchandising strategies and furloughed 900 middle managers in an effort to flatten the organization.

When Michael Julien’s health compelled him to resign in 1992, Dworkin advanced to the lead roles at the parent company. After less than a year as Storehouse’s CEO, Dworkin was hired away by Carter Hawley Hale Stores. In 1993 the board of directors hired an outsider, Keith Edelman, as chief executive officer of both Storehouse and Bhs.

Revenues at Bhs remained flat throughout this period, at around £750 million, but pretax profits more than tripled, from £22.1 million in 1992 to £77.4 million in 1996 (fiscal year ended March 30). Although Edelman has been praised as the architect of Bhs’s early 1990s turnaround, it seems clear that the efforts of the previous decade also contributed to the chain’s revitalization. Ongoing store renovations kept the selling environments up to date. Rationalization of the chain’s suppliers and its distribution scheme cut costs and smoothed inventory replenishment. Company-sponsored clothing design and modeling competitions kept the company’s apparel lines fresh and identified new talent. An increased advertising budget featured the chain’s first television campaign in years.

After divesting most of its overseas operations in the late 1980s, Bhs undertook a program of international growth through franchising. By early 1996, the chain had established 51 franchised stores in 12 countries, with a particularly heavy concentration in the Middle East. The chain expected to expand this segment of its business to China, Hong Kong, and Moscow in the late 1990s.

With its multidecade transformation from a one-price variety store to a full-fledged department store complete, economic recovery on Britain’s horizon, and an apparently dedicated management team in place, Bhs appeared poised for profitable growth in the late 1990s.