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The Burton GroupThe Burton Group

Ralph Halpern 1976 – Ralph Halpern 1976 – 19901990

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1976 - 19811976 - 1981

Halpern joins the Burton Group under Cyril Halpern joins the Burton Group under Cyril Spencer.Spencer.

Focused on Men and Women fashion retailing, Focused on Men and Women fashion retailing, other divisions scaled down.other divisions scaled down.

All shops refurbished with modern fittings.All shops refurbished with modern fittings. 1979 – all retail divisions profitable again, and 1979 – all retail divisions profitable again, and

board re-organised with Halpern as joint M.D.board re-organised with Halpern as joint M.D. 1980 saw emphasis on retail chains, others sold.1980 saw emphasis on retail chains, others sold. 1981 – Spencer asked to stand down and Halpern 1981 – Spencer asked to stand down and Halpern

appointed chairman and chief executive of appointed chairman and chief executive of Burtons.Burtons.

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Halpern’s Strategy.Halpern’s Strategy. ““centralises major policy decisions on top centralises major policy decisions on top

team, making decisions explicit and then team, making decisions explicit and then delegating implementation to each delegating implementation to each division.”division.”

Believed in:Believed in:• Following changeFollowing change• Risk takingRisk taking• Controlling certain areasControlling certain areas• High incentives for successHigh incentives for success• Demanding targetsDemanding targets• Open managerial structureOpen managerial structure• Built in competitionBuilt in competition

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Organisation StructureOrganisation StructureChairman (Halpern)

Main Board of M.D’s

Shop Operations

MerchandisingConcessions Finance

Personnel

Systems

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Strategy ResultsStrategy Results

19831983 Sales up to £300 millionSales up to £300 million Pre-tax profits to £39 millionPre-tax profits to £39 million Capital Employment returns = 16% Capital Employment returns = 16%

after £29 million spent on store after £29 million spent on store openings and 79 refurbishments.openings and 79 refurbishments.

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Next move….Next move….

To take share from market dominators, To take share from market dominators, eg. M&S.eg. M&S.

For this needed larger financial For this needed larger financial resources.resources.

Increased share capital from £55m to Increased share capital from £55m to £125m.£125m.

Reduced family and directors share to Reduced family and directors share to only 8%.only 8%.

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Assess the underlying Assess the underlying logic of this Strategylogic of this Strategy

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Changed Organisational StructureChanged Organisational StructureGoodGood

Competent and Competent and experienced managers experienced managers handled major policy handled major policy decisions decisions

Open System allowed Open System allowed more accurate and more accurate and efficient information flowefficient information flow

More competitive More competitive atmosphereatmosphere

Tighter controls in areas Tighter controls in areas that mattered that mattered

Balance between control Balance between control and flexibilityand flexibility

BadBad Aggressive atmosphereAggressive atmosphere Competition among Competition among

senior managers senior managers Despite flexibility, control Despite flexibility, control

maintainedmaintained

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Philosophy/Culture of Organisation Philosophy/Culture of Organisation AlteredAltered

StrengthsStrengths Keep up with trendsKeep up with trends Draw and keep Draw and keep

customerscustomers Be ahead of Be ahead of

competitioncompetition Portray trendy and Portray trendy and

dynamic imagedynamic image

WeaknessesWeaknesses Risk increasedRisk increased Greater costs Greater costs

involvedinvolved

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DiversificationDiversification

OpportunitiesOpportunities Increased market Increased market

share and share and customer basecustomer base

Reduced riskReduced risk

ThreatsThreats Dilution of Dilution of

resources to each resources to each storestore

High riskHigh risk

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Financial Rewards, Incentives Financial Rewards, Incentives and Demanding Targetsand Demanding Targets

ProsPros Entire organisation Entire organisation

motivatedmotivated Top management Top management

further motivatedfurther motivated Could not be Could not be

content, content, encouraged to encouraged to improve and improve and advanceadvance

ConsCons Not all employees Not all employees

motivated by motivated by financial meansfinancial means

Increased Increased competition bad if competition bad if it results in it results in reduced reduced corporationcorporation

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Background - Before the Background - Before the AcquisitionAcquisition

– Halpern - 4 years in chargeHalpern - 4 years in charge– Company Foundation in placeCompany Foundation in place– ProfitableProfitable– Good ProductsGood Products

– Department Store RetailDepartment Store Retail– 68 buildings68 buildings– £300m of debt£300m of debt

Company Status (1985)

Debenhams Acquisition

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Did Debenhams Acquisition Did Debenhams Acquisition Make Make SenseSense

Arguments for Arguments for YesYes– Increase in Market ShareIncrease in Market Share– Expansion and Expansion and

DiversificationDiversification– Change and FlexibilityChange and Flexibility– Experienced Management Experienced Management

TeamTeam– Good financial StatusGood financial Status– Debenhams InfrastructureDebenhams Infrastructure– Good DealGood Deal

Arguments for Arguments for NONO– Managerial SystemManagerial System– Centralisation of Centralisation of

decisionsdecisions– Company Specialist Company Specialist

ThemeTheme– Huge Task and CostsHuge Task and Costs– Company Cultural Company Cultural

DifferencesDifferences

ConclusionsConclusions

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The Decline of the Burton The Decline of the Burton Group: 1988-1990Group: 1988-1990

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BackgroundBackground

• In 1986 profits were £146 million.In 1986 profits were £146 million.• Chairman and CEO Ralph Halpern Chairman and CEO Ralph Halpern

was, by 1986, seen as one of the was, by 1986, seen as one of the leading figures in British business, leading figures in British business, and received a knighthood.and received a knighthood.

• By 1988 there was still both profit By 1988 there was still both profit and growth.and growth.

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However…However…

• By 1990 debt stood at 125 percent of By 1990 debt stood at 125 percent of shareholder funds. shareholder funds.

• Expected profit figures for 1990 were Expected profit figures for 1990 were £150 million - poor compared to the £150 million - poor compared to the 1989 figure of £223 million.1989 figure of £223 million.

• Burton Group Financial Services was Burton Group Financial Services was sold in the face of mounting debt and sold in the face of mounting debt and falling profits, while attempts were falling profits, while attempts were made to get rid of the property division.made to get rid of the property division.

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What were the causes of What were the causes of this decline?this decline?

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Causes of Decline: The Causes of Decline: The Economic ClimateEconomic Climate

1. Slump in the Property Sector1. Slump in the Property Sector Burton Group, like many other businesses Burton Group, like many other businesses

had moved into property development. The had moved into property development. The property slump therefore made a negative property slump therefore made a negative impact on profits, which in 1989 grew by impact on profits, which in 1989 grew by just 5.7 percent.just 5.7 percent.

Property development had begun to reduce Property development had begun to reduce by March 1990, again damaging finances, by March 1990, again damaging finances, while the withdrawl from this sector cost while the withdrawl from this sector cost millions.millions.

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2. Recession2. Recession• High Interest rates and high levels of High Interest rates and high levels of

unemployment damaged consumer unemployment damaged consumer confidenceconfidence

• This resulted in lower levels of both This resulted in lower levels of both spending and borrowing.spending and borrowing.

• The debt which the group found itself in by The debt which the group found itself in by 1990 was largely a result of the recession- 1990 was largely a result of the recession- running costs had become higher than running costs had become higher than rental income. The cost of opening rental income. The cost of opening shopping centres also had to be shouldered shopping centres also had to be shouldered by the group.by the group.

• The unexpected depth of the recession The unexpected depth of the recession effected even versatile markets within the effected even versatile markets within the retail sector.retail sector.

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City Concerns and Bad City Concerns and Bad Public RelationsPublic Relations

• The city felt that there was not enough The city felt that there was not enough information being made availiable information being made availiable about the performance of different about the performance of different parts of the group. This generated parts of the group. This generated uncertainty and worry.uncertainty and worry.

• Executives were seen as overly Executives were seen as overly defensive.defensive.

• The rising trend of gearing within the The rising trend of gearing within the group also worried the city, although group also worried the city, although this was respectable at 47 percent.this was respectable at 47 percent.

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Adverse Media AttentionAdverse Media Attention• The Department of Trade and Industry (DTI) The Department of Trade and Industry (DTI)

investigation into the takeover of investigation into the takeover of Debenhams hung over the company, Debenhams hung over the company, damaging its image. It also distracted damaging its image. It also distracted much of the management from January much of the management from January 1988 to May 1989.1988 to May 1989.

• There were attacks on Halpern’s share There were attacks on Halpern’s share option scheme, and his dual role of option scheme, and his dual role of Chairman and CEOChairman and CEO

• Halpern was also attacked personally: Halpern was also attacked personally: ‘Burton in Bimbo Limbo’ (Daily Telegraph).‘Burton in Bimbo Limbo’ (Daily Telegraph).

• This bad press damaged the reputation, This bad press damaged the reputation, credibility and image of the Burton Group.credibility and image of the Burton Group.

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Some Context…Some Context…

• Despite the decline of the group from Despite the decline of the group from 1988 to 1990, profits for 1990 were still 1988 to 1990, profits for 1990 were still £133 million, better than many forecasts.£133 million, better than many forecasts.

• Halpern and his management team had Halpern and his management team had succeeded in dramatically altering the succeeded in dramatically altering the business for the better, and were largely business for the better, and were largely responsible for the significant successes responsible for the significant successes of the 1980’s.of the 1980’s.