This has been a difficult year for retail chain Littlewoods and the Index stores and catalogues. Results for the half year to October saw the group fall into a loss of £15.6m compared with profits of more than £27m in the same period in 1999. But then again, these results are not exceptional in a sector that has been experiencing highprofile difficulties for the last few years.
This fall in profits was actually due to Littlewoods’ policy to tighten its belt, says the company. It was the group’s decision to cut prices and reposition itself as a discount store in direct competition with retailers such as Matalan, Peacock and Primark that initially led to a dramatic cut in profits. If the strategy proves to be successful, though, the profits should gradually improve over the next few months.
This spate of budgeting stretches from the shop floor to the boardroom; even the in-house legal is not exempt. Company secretary and head of legal at Littlewoods Neil Ogilvie took over just 12 months ago. He is faced with the unenviable task of bringing his side of the business in line with the company’s “better value” campaign.
Littlewoods currently uses Herbert Smith and Clifford Chance in the City, while the company’s base in the North West encourages it to use local firms such as DLA’s Liverpool office and Addleshaw Booth & Co, as well as smaller firm Cuff Roberts, with which the company has had a long relationship. Ogilvie says: “My philosophy when arriving was to give all the firms acting for the company a fair chance, to see how well they understand us. So in the short term there were no radical changes to our portfolio of firms.”
But now their time is up, a review is underway and those firms that have failed to measure up are set to be dropped. Ogilvie is determined in the next couple of months to establish a small panel of firms which will all regard Littlewoods as a “valuable client”. He says: “You need to be sure of the firms that you’re using; feel confident in their ability, with the added advantage that they understand your business.” With the company’s new price-watching campaign, the department also has to ensure that it is getting value for money.
This may be good news for the North West’s middle-tier and small firms, which would seem to fit much of the criteria, having lower costs than City firms as well as the time to devote to a company that they would regard as a major client.
But the changes herald a difficult time for Ogilvie. The company is set to lose at least two lawyers from its six-strong legal team in line with the drive that will see job cuts throughout the stores and in head office. With these departures will come an inevitable loss in expertise, particularly in employment and property law, which Ogilvie will be forced to outsource. Discussions are already underway with potential firms, although the loss of staff will inevitably cause difficulties in an office that is already stretched to deal with a myriad of issues, from contractual work to general corporate and commercial.
Last year Littlewoods shocked many by announcing it was to sell Littlewoods Leisure, its football pools business. Once one of the biggest employers on Merseyside, the business was severely hit by the introduction of the National Lottery and has been scaling down its operation ever since. The seed of the modern group, it was set up in 1922 and its profits led to the establishment of the retail chain 10 years later. The company was advised on the £161m sale by Herbert Smith, which became involved with Littlewoods in the early 1990s, when it handled some minor litigation matters for the company before moving into the more lucrative areas of corporate and commercial work. The sale to fellow pools company Rodime was aimed at concentrating the company’s resources on the retail sector.
The task now facing the company is to develop the Littlewoods brand in the retail market. It has a sizeable amount of money to invest in rebranding, refurbishment, consolidation and growth: £300m was raised with a team from Clifford Chance from the securitisation of its agency home shopping credit in a deal with the Royal Bank of Scotland. This money will be used as part of an investment programme to improve infrastructure over the next three years. The company’s 120 stores are set for a facelift, and its home shopping call centres will be upgraded in an attempt to improve service and quality.
An improvement in the fortunes of the home shopping catalogue would be much welcomed within the group, which has seen sales slump by 10 per cent from £440m to £404m in the half year to October. The company responded with an average reduction of 15 per cent on all catalogue clothes over the Christmas period. Rumours that the home shopping joint venture between Littlewoods and Arcadia was under threat because of plummeting profits have been dismissed. Dial, the jointly-owned company, was set up in 1997 with Arcadia, whose brands include Burton and Dorothy Perkins. Littlewoods is the junior shareholder with 35 per cent, but the venture depends on using the existing distribution service of the Littlewoods home catalogue.
Ogilvie believes that there is no quick fix for any home catalogue network. “It will take time, it’s the nature of the business that you only get a few opportunities to put your proposition to the customer, with just two main catalogues, Autumn/Spring and Spring/Summer,” he says. “We’ll have to reengineer products to fit within a new pricing proposition and set the mechanisms up. It’s not a quick fix – it’ll take time and effort.”
The company is also set to reduce its overall number of town centre properties in a move that will save it as much as £10m. Index stores will be incorporated into existing Littlewoods locations to create Littlewoods Extra stores. This will sweep across the UK from Dundee to Eastbourne, with as many as 35 Index stores swallowed up, leaving just a handful in locations such as Kingston Upon Thames.
By far the most exciting prospect facing Ogilvie and his team is the development of joint ventures undertaken by Littlewoods. The first, with Granada Media Group in November 1998, led to the launch of a home shopping channel entitled shop! This year another venture was set up with internet server AOL UK, intended to promote Littlewoods clothing and home furnishing ranges on the shopping sites of CompuServe and AOL. It was part of a joint marketing and distribution agreement which will see the company distribute software for AOL’s new access plan throughout its network.
Much of its success, however, will depend not on these joint ventures, but on Littlewoods’ ability to reposition itself away from the middle market. Ogilvie sees it as not so much a repositioning, but as a return to the original customers of the Littlewoods group. He says: “We were the original value retailer. Laterally, the perception has altered and we became a more middle-market player. Our thunder was stolen by discounters, but we can argue that it’s our heartland and we’re well equipped to take on any competitors in this market. Given that there’s a lot of pressure, we’ve taken the initiative and we’re confident that we’ll be successful. You won’t see us doing a C&A.”
C&A, of course, is soon to disappear from our high streets altogether, having failed to succeed in the tough world of clothes retailing.
Head of legal and company secretay
|Not listed||Owned completely by the Moores family68|
|Head of legal and company secretary||Neil Ogilvie|
|Reporting to||Chief executive Barry Gibson|
|Main location for lawyers||Liverpool|
|Main law firms||Addleshaw Booth & Co, Clifford Chance, Cuff Roberts, DLA, Herbert Smith and Maclay Murray & Spens|