Storehouse PLC

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Storehouse PLC

Marylebone House
129-137 Marylebone Road
London, NW1 5QD
United Kingdom
(44) 171 262 3456
Fax: (44) 171 262 4740

Public Company
Incorporated: 1986
Employees: 19,086
Sales: £1.08 billion (US$1.7 billion) (1995)
Stock Exchanges: London
SICs: 5311 Department Stores; 5621 Women’s Clothing Stores; 5611 Men’s and Boys’ Clothing Stores; 5712 Furniture Stores; 2511 Wood Household Furniture

With its British Home Stores (Bhs) and Mothercare chains, Storehouse PLC ranks among the United Kingdom’s top ten retail holding companies. The firm’s 142 company-owned and 51 franchised Bhs department stores sell apparel, housewares, and giftware under the Bhs, Universal, and The One and Only trademarks. The 263 company-owned and 109 franchised Mothercare stores constitute Britain’s largest retailer of clothing and housewares for mothers and their young children. The chains have international franchisees throughout Europe, the Middle East, and Asia. Led by CEO Keith Edelman in the mid-1990s, Storehouse appeared to have rebounded from an abrupt decline in the late 1980s.

Creation and Development in the 1960s

Storehouse was created through the 1986 merger of Habitat/ Mothercare PLC and British Home Stores PLC. The brainchild of designer Terence Conran, this union created Great Britain’s eighth-largest retail entity. It was to have been the crowning achievement of Conran’s acclaimed career, but instead was his dénouement.

Trained as a textile designer, Conran had launched his own line of furniture in 1960. Dissatisfied with the retail atmosphere in which his goods were sold, Conran opened his first Habitat store in London’s Chelsea district in 1964. The reasonably-priced, Bauhaus-inspired furniture was an instant hit and soon came to represent the epitome of British taste. It didn’t hurt that the styles were adopted by royalty as well as such pop stars as the Beatles. Fifteen years and 52 stores later, Habitat easily qualified as, in the words of Forbes’ Jeffrey Ferry, “a British institution.” In 1983, Prime Minister Margaret Thatcher knighted Conran “for services to British design and industry.”

Emboldened by his sweeping success in the United Kingdom, Conran expanded into the United States in 1977. Since the Habitat name was already owned by a New York furniture store, the American units became known as Conran’s. Fierce competition and discrepancies between British and American sizing methods (i.e., comforters too short for U.S. beds), however, made for a rocky start; Conran’s didn’t break even until 1983.

Expansion through Acquisition in the 1980s

Back at home, it seemed that Conran was on a roll. He embarked on a program of expansion and diversification through acquisition in the early 1980s. With help from British investment banker Roger Seelig of Morgan Grenfell, Conran took Habitat public in 1981. The following year, Habitat acquired the 360-store Mothercare chain for £50 million. Founded in the early 1960s by Selim Zilkha, this retailer specialized in maternity apparel and childrenswear, and had operations in the United States as well as the United Kingdom. Habitat took a 65 percent stake in France’s Maison la Redoute retail chain in 1982 and 48 percent of ladies’ apparel chain Richard Shops Holdings Inc. the following year. Conran also created a teen fashion and menswear chain called NOW during this period.

Conran’s marketing savvy appeared boundless. During this period he wrote several successful design and decorating how-to books, launched his own publishing company (Conran Octopus), founded a trendy London restaurant, and established a “town-planning firm.”

The early 1980s acquisition spree appeared to have been a retail coup. Sales had grown from £67.2 million in fiscal 1981 to £446.7 million (US$634 million) in 1984, and pre-tax profits grew from £4 million to £35.6 million (US$52 million) during the same period. The company’s stock price multiplied more than four times by mid-1985, leading Management Today to declare the Habitat/Mothercare merger “a clear success” in a February 1986 article.

British Home Stores Merger

That year Conran made what was to have been his crowning achievement, merging his chains of boutiques with British Home Stores. The addition of this 130-unit department store chain more than doubled sales to over £1 billion (US$1.47 billion). The newest member of Conran’s coterie was also the oldest, having been established in 1928 as a variety store along the lines of Woolworth’s.

By the early 1980s, British Home Stores ranked a distant second among the country’s mass retailers and struggled with a “dowdy” image. Although it boasted efficient back office operations and had invested £100 million on store and merchandise renovations in 1984 and 1985, the company suffered from unflattering comparisons with Britain’s leading retailer, Marks & Spencer. Conran hoped that the merger would exploit the best characteristics of its key components: Habitat/Mothercare could benefit from British Home Store’s strict controls, while British Home Stores could achieve the marketing flair it lacked.

A new holding company, Storehouse PLC, was formed, and although British Home Stores owned a controlling 55 percent share and Habitat/Mothercare the remaining 45 percent, the charismatic Conran was elected chairman and CEO of the parent company. With over six million square feet of selling space, Britain’s eighth-ranking retail holding company featured seven chains: British Home Stores, Habitat, Mothercare, Richards, NOW, Heals, and Conran’s. By the time of the merger, the company’s over 200 Conran’s and Mothercare stores in the United States were contributing 17 percent of annual sales. Relatively small acquisitions in 1987 and 1988 added France’s Jacadi, an upscale childrenswear chain, and the six-store Blazer chain, which sold high-end menswear designed in-house.

Conran embarked on what was expected to be a three-year period of transition from which Storehouse’s subsidiaries would emerge reformed in each other’s image. British Home Stores’ repositioning focused on three areas—merchandise, store design, and image—with the primary goal of appealing to the younger, more affluent consumers to whom Habitat had traditionally catered. Storehouse closed the company’s embattled food departments and updated its apparel lines with trendier, more youthful styles. Store renovations begun in the early 1980s continued through the decade. The chain’s image makeover included a rather idiosyncratic logo change known as “the flying h,” in which a lowercase “h” replaced the middle initial in the corporate insignia. The “s” was later lowercased as well. An increased advertising budget promoted the “Conranization” of Bhs. At the same time, Storehouse was trying to apply Bhs’s operational know-how to Habitat/Mothercare. Storehouse also launched a group chargecard in 1986 and a home-shopping joint venture in 1987.

Late 1980s Decline

But as the British retail environment began to sour in the late 1980s, Storehouse’s efforts to achieve marketing and operational excellence fell short. Retail analysts and takeover artists began to opine that Storehouse’s parts were worth more than the whole, and at one point, Conran himself appeared to agree with them. In mid-1987, he apparently opened negotiations with Mountleigh PLC, which planned a leveraged buyout and spin-off of the individual retail chains. Mountleigh’s £4.45 per share bid pegged Storehouses’ value at £1.7 billion (US$3 billion).

Conran changed his mind, however, and that September he publicly declared his loyalty to the unified group, shunning the buyout. It was, ironically, the wrong choice. The stock market crashed in October, and Storehouse’s share price dropped to less than £3. That’s when Benlox Holdings PLC joined the fray with a £1.93 billion (US$3.42 billion) takeover bid. Institutional investors frustrated with Conran’s apparent inability to manage a £1 billion holding company told him that they would throw their support to Benlox unless Conran agreed to immediately relinquish the chief executive office and retire from the chairmanship in 1991. Hoping to save face and Storehouse, Conran acquiesced. Forbes’ Jeffrey Ferry observed that “It [was] all a rather tarnished ending to an otherwise brilliant career.”

In June 1988, Storehouse’s board of directors brought in 49-year-old Michael Julien to replace Conran as CEO. Although Julien had no retail experience, he had a strong financial background.

As Storehouse struggled to right itself, group pretax profits plunged from about £130 million in 1987 to £11.3 million in 1989. All the primary business segments were in trouble, in part because of Britain’s retail slump. Mothercare’s British market share slid from 11 percent to nine percent, Habitat UK suffered its first-ever loss, a £10 million shortfall, and Bhs’s operating profits declined by over 40 percent.

Early 1990s Turnaround

Following a review of Storehouse’s operations, Julien reorganized the company into three primary divisions: Specialty Retail, comprising Mothercare, Richards, Blazer, Anonymous, and Jacadi; Home Furnishing, including Habitat, Heals, and the Conran Shop; and Bhs. Julien then made a three-pronged effort at cutting costs, which were rising twice as fast as sales. A centralization of Storehouse’s distribution system allowed for the closure of one warehouse and eliminated several hundred employees. A rationalization of the group’s computer systems made four of the company’s six data processing centers redundant. Inventory reductions and £49.4 million worth of write-offs for unsalable goods and unusable store furnishings were completed early in 1989. In an interview with the Financial Times that year, Julien commented that “the provisions we are making today are really only those that should have been made at the time of the merger in 1986.”

In 1989, Julien began a second, more drastic effort to turn Storehouse around, divesting noncore interests to focus squarely on Bhs and Mothercare UK. That year, the company raised over £140 million through the sale of partial stakes in FNAC SA and Great Savacentre Ltd. The 1990 spin-off of Jacadi Childrenswear brought in Ffr 136.6 million (US$28.2 million). In 1991, Storehouse sold Mothercare Stores, Inc., the U.S. arm of its maternity chain, to American investment company Bain Capital Inc., taking a £7.5 million (US$13.5 million) loss on the transaction.

Michael Julien retired in mid-1992 due to health concerns, and David Dworkin advanced from chairman and CEO of Bhs to succeed him. Dworkin continued Julien’s divestment strategy. Spin-offs of Richards, Habitat Europe, and Conran’s that year raised over £150 million. The proceeds were invested in renovations of Mothercare UK and Bhs, as well as advertising campaigns that publicized the changes.

After less than a year in Storehouse’s top spot, Dworkin quit to become president and CEO of Carter Hawley Hale Stores in April 1993. After a four-month search, Storehouse hired 42-year-old Keith Edelman to fill the vacant slot. Despite the frequent changes in top management, the overriding strategy of divestment to focus primarily on Bhs and Mothercare began to bear fruit in the mid-1990s. Group sales remained flat, at just over £1 billion, but profits rose from £46.6 million in fiscal 1993 to nearly £109 million by fiscal 1996.