31 May 2004
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It is a rare day in the financial press when retailers are not dominating the headlines. Financial performance, a spate of acquisitions, competition inquiries and regulatory changes ensure that the sector is more often than not the focus of public and professional attention – and even more so with Philip Green’s move on Marks & Spencer last week.
But the challenges facing retailers are being met head-on by their in-house lawyers, often on ever-dwindling budgets. At Marks & Spencer (M&S), head of group legal services Robert Ivens sees mere survival as the key commercial issue facing many retailers. The march of supermarket retailers such as Tesco and Asda into non-food sales such as books, CDs and pharmaceuticals has had a major impact across the sector. Boots and WHSmith have both suffered as a result of competition from supermarkets encroaching on to their turf.
Both M&S and Boots have undergone radical cost-cutting schemes, while high-street electricals retailer Dixons has announced the closure of a third of its stores. At least half a dozen members of Boots’ legal team have accepted voluntary redundancy, following the announcement in January that the pharmacy retailer would be slashing more than 900 jobs from its head office. M&S’s legal department escaped unscathed from the retail giant’s recent redundancy programme, largely thanks to Ivens’ tight management of his nine-strong legal team. Indeed, in the past 12 months, Ivens has appointed four new lawyers.
However, not all retailers are reporting doom and gloom. GUS, the owner of Argos and Home Base, has reported storming results for the financial year, and its four-strong legal department is set to almost double after head of legal Nicole Clark embarked on a recruitment drive earlier this year.
Whatever their performance, retailers (characterised by a heavy regulation, increasing scrutiny from the Competition Commission and the Office of Fair Trading (OFT) and a string of iconic acquisitions), are proving fertile ground for their legal advisers. Retailers across the board are facing a raft of changes to regulations affecting the way they operate. For food and grocery retailers, changes to the alcohol licensing regime will see the introduction of two separate licences – personal licences that attach to the licensee and those that attach to premises.
Ivens says that while the changes will mean greater short-term outlay, retailers will benefit in the long term. And e-commerce is revolutionising not only the way retailers operate, but also the work of their lawyers. In-house experts agree that e-commerce is occupying ever-increasing levels of lawyers’ time.
The Department of Trade and Industry has completed its consultation on the EU’s proposed Regulation on Sales Promotions. If implemented, the regulation could affect retailers’ promotional offers in the UK. One plan could see criminal liability for breaches of the regulation attached to the company. Meanwhile, product safety directives enforced by the Consumer Protection Act are also under revision.
The shake-out in the supermarket sector has been a boon for competition lawyers. Most notably, the battle for Safeway, eventually won by Wm Morrison, prompted a full-scale competition inquiry into supermarket shopping. But lower down the scale, smaller supermarket retailers such as Londis and Europa are also up for grabs.
Berwin Leighton Paisner client Tesco is facing opposition to its proposed takeover of Cullens, the London-based chain of convenience stores. The OFT cleared Tesco’s acquisition of Administore, Cullens’ parent company in March, but the Federation of Wholesale Distributors, supported by the Big Food Group, has lodged an appeal with the Competition Appeal Tribunal.
Activity in the sector has also been a boon for some unlikely law firm candidates. Niche Stoke-on-Trent firm Heatons is muscling in on Allen & Overy’s patch after winning its third instruction for acquisitive Icelandic retail giant Baugur. Led by corporate partner David Beech, the firm advised on Baugur’s £110m acquisition of UK jewellery retailer Goldsmiths. The instruction was a major vote of confidence for Heatons after it proved its worth on far smaller deals, such as the £14m purchase of UK foods group Julian Graves.
Hatton Garden firm Bevan Kidwell is instructed regularly by Argos on litigation and employment tribunal matters, and last year the catalogue retailer followed former Pinsents partner Jeremy Parkin to his new firm, 13-partner Birmingham outfit The Wilkes Partnership.
Between the competition inquiries, acquisitions and regulatory changes, in-house lawyers in the retail sector have their hands full.
Add shopping to the mix and it is no wonder David Thurston, head of group legal services at J Sainsbury, is excited about his work.
“The retail sector is the most extraordinary and fascinating place to work,” he says, “because when I come in every morning, I never know what I’m going to be doing.”
|Marks & Spencers|
|Employees||67,100 (as at 31 March 2003)|
|Legal capability||Nine lawyers and three paralegals|
|Head of legal||Robert Ivens|
|Reporting to||Company secretary Graham Oakley|
|Annual legal spend||£1.5m-£2m|
Marks & Spencer’s (M&S) legal team escaped unscathed from the retail giant’s recent redundancy programme, largely thanks to the efficient management of head of legal Robert Ivens. This year saw profits at the iconic but struggling high street retailer rise from £715.7m to £739.8m. A cost-cutting and redundancy programme, as well as a slashing of staff bonuses from £34m to just £5m, helped the bottom line.
Ivens’ legal team was central to the turnaround of M&S and was heavily involved in the closure of its loss-making international business, including the sale of the bulk of the retailer’s French stores to Galeries Lafayette in 2001 and the return of £2bn to shareholders in 2002.
The nine-strong legal department is a mix of experienced and junior lawyers – those who have served at M&S for more than a decade and those who joined the retailer in the past 12 months.
Indeed, Ivens is bucking the trend set by both other
in-house teams across industry sectors and by his own company by embarking on a hiring spree. In the past year alone, Ivens has hired an IP lawyer, two real estate lawyers and a consumer protection lawyer. The team’s remit now extends to franchising, contract law, brand protection and retail issues, employment and real estate work.
Changes to the alchohol licensing regime are being watched closely by the retailer, as applications for alchohol licences make up a crucial part of the work of the legal team. E-commerce is another key area of work for the legal department following the enactment of the Distance Selling Regulations in 2000.
While M&S does not have a formal panel, Slaughter and May generally handles corporate work, while Allen & Overy is drafted in to advise on finance.
|Pre-tax profits||£174m (for the year ended 31 January 2004)|
|Director of legal services||Terry Neville|
|Reporting to||Chairman Stuart Hampson|
|Main law firms||Dechert, Freeman Box, Lovells|
Earlier this year, John Lewis, a company not traditionally known for its acquisitiveness, surprised the market by snapping up a cache of Morrisons supermarkets. The John Lewis Partnership’s supermarket arm Waitrose stole a march on its rivals by acquiring 19 of the 52 stores divested by Sir Ken Morrison in the wake of his £3bn takeover of Safeway.
The acquisition will take Waitrose into the North of
England for the first time.
Yorkshire firm Gordons is acting for longstanding client
Wm Morrison on the deal, while Lovells, led by client relationship partner Michael Stancombe, is leading the team for John Lewis.
John Lewis director of legal services Terry Neville will be key in the negotiations. His six-strong legal team handles commercial, real estate and virtually all of the retailer’s employment work, including representing John Lewis at industrial tribunals.
As an employee-owned company, a large chunk of the in-house team’s work is employment-related.
All the equity in the business is held on behalf of employees by a UK-incorporated trust company, and they have a major role in decision-making at John Lewis, right down to voting on the store’s opening hours.
Like the other in-house lawyers, Neville predicts that online retailing will revolutionalise the way
consumers shop. “Shopping online will become second nature,” he asserts.
|Annual turnover||£18.5bn (as at May 2003)|
|Head of group legal services||David Thurston|
|Reporting to||Group secretary Tim Fallowfield|
|Main law firms||Addleshaw Goddard, Biggart Baillie, CMS Cameron McKenna, Denton Wilde Sapte, Eversheds, Lawrence Graham, L’Estrange & Brett, Linklaters, McDermott Will & Emery and SJ Berwin|
As part of its attempted comeback after a few tough years, J Sainsbury has radically restructured its legal department. The new structure, which came into effect at the start of April, sees the legal department structured with a view to serving the stores. As a result, it has been split into three teams: advisory, real estate and operations.
Prior to the reorganisation, the department was split according to each lawyers’ expertise. Now six advisory lawyers handle corporate work and matters relating to trading, marketing, competition, commercial and IP, while six operations lawyers handle issues relating to distribution and store operations.
The group is searching for its first in-house real estate lawyer and has announced a review of its real estate advisers in the autumn.
J Sainsbury may have issued a profits warning in March, but head of group legal services David Thurston is optimistic about its prospects, telling The Lawyer: “The business has gone through a difficult time, which has been quite painful. But there’s a lot of will to get it right and we’re determined to make it work.”
|Head of legal||Nicole Clark|
|Legal capability||Four (soon to grow to seven)|
|Annual legal spend||£250,000|
|Main law firms||Addleshaw Goddard, Bevan Kidwell, Burges Salmon, Dechert, DLA, Eversheds, Stephenson Harwood, The Wilkes Partnership /td>|
When Nicole Clark joined Argos eight years ago, it was solely a catalogue retailer. Today, it is what Clark terms “a multi-channel retailer”, selling through its stores, over the phone and online.
The company’s diversification has ensured that its legal team faces a growing array of issues, from data protection to health and safety and financial services.
The acquisition of Home Base has seen work for the legal team almost double. As a result, Clark is now seeking to employ an additional three lawyers – a general commercial lawyer and two more senior data protection and financial services specialists.
In common with her fellow retail in-housers, Clark’s legal team is feeling increased pressure from the regulators – the Office of Fair Trading and the Competition Commission in particular. Argos is instructing Burges Salmon on competition issues, after the company followed partner Andrij Jurkiw from Pinsents.
Clark has no plans to introduce a law firm panel, insisting that she cannot see the benefits for Argos, although she adds: “We’re open to giving work to others. It’s a good way to keep lawyers on their toes.”