Transcript The Burton Group Ralph Halpern 1976 – 1990 1
The Burton Group
Ralph Halpern 1976 – 1990
1
1976 - 1981
Halpern joins the Burton Group under Cyril Spencer.
Focused on Men and Women fashion retailing, other divisions scaled down.
All shops refurbished with modern fittings.
1979 – all retail divisions profitable again, and board re-organised with Halpern as joint M.D.
1980 saw emphasis on retail chains, others sold.
1981 – Spencer asked to stand down and Halpern appointed chairman and chief executive of Burtons.
2
Halpern’s Strategy.
“centralises major policy decisions on top team, making decisions explicit and then delegating implementation to each division.” Believed in:
• •
Following change Risk taking
• • • • •
Controlling certain areas High incentives for success Demanding targets Open managerial structure Built in competition
3
Shop Operations
Organisation Structure
Chairman (Halpern) Main Board of M.D’s Systems Merchandising Concessions Finance Personnel 4
Strategy Results
1983 Sales up to £300 million Pre-tax profits to £39 million Capital Employment returns = 16% after £29 million spent on store openings and 79 refurbishments.
5
Next move….
To take share from market dominators, eg. M&S.
For this needed larger financial resources.
Increased share capital from £55m to £125m.
Reduced family and directors share to only 8%.
6
Assess the underlying logic of this Strategy
7
Changed Organisational Structure Good Competent and experienced managers handled major policy decisions Open System allowed more accurate and efficient information flow More competitive atmosphere Tighter controls in areas that mattered Balance between control and flexibility Bad Aggressive atmosphere Competition among senior managers Despite flexibility, control maintained 8
Philosophy/Culture of Organisation Altered
Strengths
Keep up with trends Draw and keep customers Be ahead of competition Portray trendy and dynamic image
Weaknesses
Risk increased Greater costs involved 9
Diversification
Opportunities Increased market share and customer base Reduced risk Threats Dilution of resources to each store High risk 10
Financial Rewards, Incentives and Demanding Targets
Pros Entire organisation motivated Top management further motivated Could not be content, encouraged to improve and advance Cons Not all employees motivated by financial means Increased competition bad if it results in reduced corporation 11
Background - Before the Acquisition
Company Status (1985) – Halpern - 4 years in charge – Company Foundation in place – Profitable – Good Products Debenhams Acquisition – – Department Store Retail 68 buildings – £300m of debt 12
Did Debenhams Acquisition Make Sense
Arguments for Yes – – – – – – – Increase in Market Share Expansion and Diversification Change and Flexibility Experienced Management Team Good financial Status Debenhams Infrastructure Good Deal
Conclusions
Arguments for NO – Managerial System – – – – Centralisation of decisions Company Specialist Theme Huge Task and Costs Company Cultural Differences 13
The Decline of the Burton Group: 1988-1990
14
Background
• • • In 1986 profits were £146 million.
Chairman and CEO Ralph Halpern was, by 1986, seen as one of the leading figures in British business, and received a knighthood.
By 1988 there was still both profit and growth.
15
However…
• • • By 1990 debt stood at 125 percent of shareholder funds. Expected profit figures for 1990 were £150 million - poor compared to the 1989 figure of £223 million.
Burton Group Financial Services was sold in the face of mounting debt and falling profits, while attempts were made to get rid of the property division.
16
What were the causes of this decline?
17
Causes of Decline: The Economic Climate
1. Slump in the Property Sector
Burton Group, like many other businesses had moved into property development. The property slump therefore made a negative impact on profits, which in 1989 grew by just 5.7 percent.
Property development had begun to reduce by March 1990, again damaging finances, while the withdrawl from this sector cost millions.
18
• • • •
2. Recession
High Interest rates and high levels of unemployment damaged consumer confidence This resulted in lower levels of both spending and borrowing.
The debt which the group found itself in by 1990 was largely a result of the recession running costs had become higher than rental income. The cost of opening shopping centres also had to be shouldered by the group.
The unexpected depth of the recession effected even versatile markets within the retail sector.
19
City Concerns and Bad Public Relations
• • • The city felt that there was not enough information being made availiable about the performance of different parts of the group. This generated uncertainty and worry.
Executives were seen as overly defensive.
The rising trend of gearing within the group also worried the city, although this was respectable at 47 percent.
20
• • • •
Adverse Media Attention
The Department of Trade and Industry (DTI) investigation into the takeover of Debenhams hung over the company, damaging its image. It also distracted much of the management from January 1988 to May 1989.
There were attacks on Halpern’s share option scheme, and his dual role of Chairman and CEO Halpern was also attacked personally: ‘Burton in Bimbo Limbo’ (Daily Telegraph).
This bad press damaged the reputation, credibility and image of the Burton Group.
21
Some Context…
• Despite the decline of the group from 1988 to 1990, profits for 1990 were still £133 million, better than many forecasts.
• Halpern and his management team had succeeded in dramatically altering the business for the better, and were largely responsible for the significant successes of the 1980’s.
22