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Retail | Business Turnaround & Financial Management

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A withdrawal of supply by a major brand led to large losses. A turnaround plan was put in place with lots of challenges to face...

Lingerie brand management business – turnaround & financial management


Situation

This lingerie brand management business was formed by a husband and wife team after long careers in FMCG blue-chip companies. The business focused on a select number of brands and over time grew in reputation, size and profitability. Unfortunately, a change in philosophy and approach from the major supplier led to the loss of this business, resulting in a 60%+ loss of turnover and significant operating losses.

Despite the contract cessation being illegal, settling a damages claim would take some time and hence a turnaround plan was required. This entailed reducing costs without damaging the business’ infrastructure, growing the existing brands, finding new ones and successfully settling the commercial dispute. This would take time and also take place in a challenging retail environment and funding was therefore needed to tide the business over. Additionally, two-thirds of the turnover came in the second half of the year, making for a very uneven cashflow.

Action

Cut costs

Costs were reduced by £¾m+ over a two-year period despite an increase in high-street rents and website investment.

Grow sales

Existing products – the team concentrated on increasing income from existing brands through store supply, boutique and concession outlets and via the branded website, where sales grew by an average of 30% pa.
New brands – a number of new brand management contracts were won and although a slower growth, they have made a significant contribution to overall sales.
Total – total sales under management have grown significantly and have now returned to the overall level prior to the major supplier terminating the contract. Whilst it has taken some time and at times has been a painful journey, the business is less dependent on a single brand and has a broader and more sustainable base.

Conclude a satisfactory commercial settlement

An out-of-court settlement of £¾m was reached with the supplier, settling an outstanding liability, repairing a negative balance sheet and contributing £250k to cashflow. Although the settlement didn’t cover the full losses, it enabled the partnership to draw the line under a very big issue, which could have proven terminal had the case been lost – and provided much-needed cash.

Raise capital

The turnaround was expected to take up to three years and significant additional funding was needed to cover this period. This was not easy as the client’s bank declined to provide any further funding, so we sourced it from increased borrowing against existing properties, private loans from individuals and Tier 2 market borrowing, which was more expensive, but needed for a short term. This was later replaced with better-priced longer-term commercial loans. As a result, we raised £1m+ which was essential to the business’ survival.

Manage cashflow

The large value orders and seasonal income produced a very fluctuating cashflow, which needed daily management and ongoing negotiations with HMRC and short-term lenders, when large payments, such as VAT, were due. Without this, the turnaround would have failed.

Manage external stakeholders: the suppliers and the bank

The bank agreed to continue to provide commercial finance through a CID facility and a short-term asset-backed loan but kept the situation under a very close observation with regular meetings and feedback. At the start of the turnaround, the suppliers were owed large sums, most of them overdue. Playfair Partnerships stepped in to devise a financial strategy and assisted in managing these relationships, which was also essential to the turnaround.

Communications, general and financial planning

With lots of ‘moving parts’ to bring together, large sums to raise and many stakeholders to communicate with, we needed to plan a lot – both short-term for cashflow management, and probably more importantly, long-term to chart the direction of travel, ensuring the end represented the right result and was navigable. Whilst very time consuming, this was vital for a successful outcome.

Outcome

It is hard to convey the number of different issues that needed overcoming and the fine margins in doing so – we couldn’t afford to lose any of the battles and this was a true team effort. However, three years after the supplier withdrawal, the business is back in profit and, while continuing in a challenging environment, is on target to meet projected sales and profit targets. With net debt coming down, it will shortly leave the bank’s support unit. Playfair Partnerships continue to provide financial control and the business continues to grow.

Testimonial

“Playfair Partnerships are the complete package: professional, knowledgeable and committed. They have helped guide us through a very difficult journey, while at the same time truly becoming part of our business family.” – Managing Director and Owner

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