News - Midlands
Keeping the sole of the business
"You got that suit from Slater's, didn't you?"says David Lockyer as he settles back into his seat, folding his arms and smiling with triumph. "See, I pride myself on knowing my customers' buying habits. Can see them straight away."
Damn the man, he's right! And suits aren't even his speciality. Even though my feet are hidden well under the boardroom table at Stead's Syston head office, Lockyer knows exactly what style of shoes I'm wearing (a pair of black Oxfords, by the way).
Although it may be disconcerting for me, that ability to understand the customer is responsible, in part, for Lockyer and his colleagues being able to pull off one of the Midlands' major management buyout deals of recent times.
In December managing director Lockyer and finance director Peter Foot completed a £354m secondary management buyout (MBO) of Stead & Simpson, buying out long-term investor Development Securities, the property and investment firm. The deal was backed by Bank of Scotland, which took a minority stake in the company via its integrated finance product.
Barry Stevenson, a former director of Marks & Spencer and B&Q, also joined the board as chairman, replacing retiring chairman John Shannon.
The fact that Stead & Simpson - today the third-largest specialist shoe retailer in the UK - was in a strong enough position to encourage such investment and confidence was no mean feat.
In fact, it harks back to the days when the family-run firm, founded in 1834, was most definitely on the up. At one point the business even owned the world's biggest shoe factory, providing gainful employment for some 2,500 people.
The Stead & Simpson heartland was in rural areas, with a store in many a market town - particularly East Anglia, the East Midlands, The Marches and parts of the West Country. It was one of those old, trusted brands, perhaps a little unexciting, but reliable, rooted and very much part of the community.
But fast-forward to the early 1990s and the company was in deep trouble. The factory had long gone, the branding was uncertain, shops looked tatty, and the business was bleeding cash. It lost £32m in 1993, the year that Lockyer joined from Clarks as part of an MBO team that brought in venture capitalist Apax as majority shareholder. A year later Development Securities took a 20 per cent stake.
"The company was in a poor state. It needed a radical change in direction," says Lockyer. To be honest, the business would have gone under unless it had gone through the management buyout.
"Morale was pretty low and although the people here were very good, at all levels, they had gone through years of feeling neglected and watching the business lose serious amounts of money. They'd seen what needed to be done, but the finances and investment needed for the business to survive were not available."
Lockyer says the fundamental problems were three-fold. It needed to build turnover, invest in its stores and look at its branding. But doing the buyout was only the start of the challenge to turn the business around.
"The problem was that after the deal there was not enough money in the business to carry out the acquisitions, refitting and refurbishing that we needed," says Lockyer. "We were working with rather conservative bankers who wanted to be paid by the end of the year. Then we came across asset-based lender Burdale Financial, which was prepared to loan against the value of our assets. We were able to arrange a deal that effectively gave us £3£310m of funding, eventually rising to £3£315m. It was expensive money, but it gave us a degree of security to plan for the future and a method of managing our stock."
Cash in hand, Lockyer and his colleagues started overhauling Stead & Simpson's network of stores, closing down those whose performance was below par and investing in those showing promise but which needed a bit of a polish.
"We needed a complete refurbishment programme - some of our stores had not been improved for more than 20 years and they were really showing their age,"says Lockyer.
Given the environment, he also embarked on a make-or-break acquisition policy to expand the group's network, brands and turnover. "Once we got the funding we could start moving, so we made a series of strategic acquisitions."
One of the first was in 1998 with the purchase of Shoe Express and Famous Footwear from Philip Green's British Shoe Corporation. The deal brought Steads a further 77 shops and another £3£334m turnover.
"Shoe Express was a hassle-free, price-driven chain based in city centres, which complemented us rather nicely,"says Lockyer. "We're still building the business. Meanwhile, Famous Footwear has been a real success. It's grown from three to 32 shops."
The following year, Steads bought Peter Briggs, a branded business selling Clarks shoes, based in Leicester.
"Retail tends to work in step changes, say in terms of £35m, £350m and £3500m turnovers,"says Lockyer. "A few people can run a £35m firm, but a £350m business needs a proper administration and management team, while £3500m needs a seriously big corporate structure. But the costs between running, say, a £310m and £350m business, are quite small. So when you make a step change it makes sense to get extra turnover. When we add stores we don't add central costs, so acquisition - at the right price - is a good way of developing a business."
But as the business found its feet, the question of ownership loomed large again. Apax departed in 2003 when the management increased its stake to 60 per cent, and Development Securities doubled its interest to 40 per cent.
"Development Securities raised its stake to make sure it had control over its site at our headquarters," says Lockyer. "But it saw that we were doing rather well and decided the time was right to get value out of the business. It's a developer, not a retailer."
Lockyer says there were many expressions of interest, and it came to a choice for management between working with another venture capitalist, or going for a full MBO.
But, despite the improvement in Stead's fortunes, Lockyer isn't going to lose sight of any financial discipline. Although the business now turns over a creditable £3141m, resources are still limited and he is focused on the front line of the high street, rather than big statement projects. For instance, he admits that the decor in his headquarters is still that of the 1970s. Even marketing, branding and shop design, essential issues in a fashion-driven industry, are in-house affairs.
He adds: "At the time of the MBO we were still an own-brand retailer, focused on the lower end of the market."
"I believed we could sell shoes for higher prices, so we introduced new brands into the mix, like Hush Puppies, Wranglers and Lotus. We'd also inherited the Lilley & Skinner name from the wreckage of the British Shoe Corporation, and we built that as a brand of upmarket ladies' shoes. All this has raised our game and raised our basic price."
As with virtually any business you care to mention, Lockyer reckons the basis of Stead's success is its people.
Now this line gets trotted out in business interviews so often that I had started to suspect it was a fundamental part of any basic PR course.
But with Lockyer I feel it's honestly felt. Although it employs thousands and has gone through repeated upheavals, Stead & Simpson remains, at its heart, a local store - a market town shop whose Saturday staff are likely to know the names of the people they serve.
"I spent a lot of time talking to people," he says. "We've a lot of very loyal staff, particularly in the small towns. They're part of the community, who know their own customers, and make them feel they're cared for. That's our real strength."
The latest deal has given Lockyer, an economics graduate, his greatest profile as a businessman - but it is a profile he takes in his stride.
Keen to come across in a coherent fashion, he was extremely well prepared for our interview, having clearly thought hard about what he wanted to say beforehand.
But he shouldn't have thought that hard. After all, Lockyer has been associated with footwear since the cradle. His father worked for 50 years for Clarks Shoes at its headquarters in Street in Somerset - and son would follow father into the same business.
The way he is going, you can quite imagine Lockyer junior clocking up a similar stint in the industry.
Damn the man, he's right! And suits aren't even his speciality. Even though my feet are hidden well under the boardroom table at Stead's Syston head office, Lockyer knows exactly what style of shoes I'm wearing (a pair of black Oxfords, by the way).
Although it may be disconcerting for me, that ability to understand the customer is responsible, in part, for Lockyer and his colleagues being able to pull off one of the Midlands' major management buyout deals of recent times.
In December managing director Lockyer and finance director Peter Foot completed a £354m secondary management buyout (MBO) of Stead & Simpson, buying out long-term investor Development Securities, the property and investment firm. The deal was backed by Bank of Scotland, which took a minority stake in the company via its integrated finance product.
Barry Stevenson, a former director of Marks & Spencer and B&Q, also joined the board as chairman, replacing retiring chairman John Shannon.
The fact that Stead & Simpson - today the third-largest specialist shoe retailer in the UK - was in a strong enough position to encourage such investment and confidence was no mean feat.
In fact, it harks back to the days when the family-run firm, founded in 1834, was most definitely on the up. At one point the business even owned the world's biggest shoe factory, providing gainful employment for some 2,500 people.
The Stead & Simpson heartland was in rural areas, with a store in many a market town - particularly East Anglia, the East Midlands, The Marches and parts of the West Country. It was one of those old, trusted brands, perhaps a little unexciting, but reliable, rooted and very much part of the community.
But fast-forward to the early 1990s and the company was in deep trouble. The factory had long gone, the branding was uncertain, shops looked tatty, and the business was bleeding cash. It lost £32m in 1993, the year that Lockyer joined from Clarks as part of an MBO team that brought in venture capitalist Apax as majority shareholder. A year later Development Securities took a 20 per cent stake.
"The company was in a poor state. It needed a radical change in direction," says Lockyer. To be honest, the business would have gone under unless it had gone through the management buyout.
"Morale was pretty low and although the people here were very good, at all levels, they had gone through years of feeling neglected and watching the business lose serious amounts of money. They'd seen what needed to be done, but the finances and investment needed for the business to survive were not available."
Lockyer says the fundamental problems were three-fold. It needed to build turnover, invest in its stores and look at its branding. But doing the buyout was only the start of the challenge to turn the business around.
"The problem was that after the deal there was not enough money in the business to carry out the acquisitions, refitting and refurbishing that we needed," says Lockyer. "We were working with rather conservative bankers who wanted to be paid by the end of the year. Then we came across asset-based lender Burdale Financial, which was prepared to loan against the value of our assets. We were able to arrange a deal that effectively gave us £3£310m of funding, eventually rising to £3£315m. It was expensive money, but it gave us a degree of security to plan for the future and a method of managing our stock."
Cash in hand, Lockyer and his colleagues started overhauling Stead & Simpson's network of stores, closing down those whose performance was below par and investing in those showing promise but which needed a bit of a polish.
"We needed a complete refurbishment programme - some of our stores had not been improved for more than 20 years and they were really showing their age,"says Lockyer.
Given the environment, he also embarked on a make-or-break acquisition policy to expand the group's network, brands and turnover. "Once we got the funding we could start moving, so we made a series of strategic acquisitions."
One of the first was in 1998 with the purchase of Shoe Express and Famous Footwear from Philip Green's British Shoe Corporation. The deal brought Steads a further 77 shops and another £3£334m turnover.
"Shoe Express was a hassle-free, price-driven chain based in city centres, which complemented us rather nicely,"says Lockyer. "We're still building the business. Meanwhile, Famous Footwear has been a real success. It's grown from three to 32 shops."
The following year, Steads bought Peter Briggs, a branded business selling Clarks shoes, based in Leicester.
"Retail tends to work in step changes, say in terms of £35m, £350m and £3500m turnovers,"says Lockyer. "A few people can run a £35m firm, but a £350m business needs a proper administration and management team, while £3500m needs a seriously big corporate structure. But the costs between running, say, a £310m and £350m business, are quite small. So when you make a step change it makes sense to get extra turnover. When we add stores we don't add central costs, so acquisition - at the right price - is a good way of developing a business."
But as the business found its feet, the question of ownership loomed large again. Apax departed in 2003 when the management increased its stake to 60 per cent, and Development Securities doubled its interest to 40 per cent.
"Development Securities raised its stake to make sure it had control over its site at our headquarters," says Lockyer. "But it saw that we were doing rather well and decided the time was right to get value out of the business. It's a developer, not a retailer."
Lockyer says there were many expressions of interest, and it came to a choice for management between working with another venture capitalist, or going for a full MBO.
But, despite the improvement in Stead's fortunes, Lockyer isn't going to lose sight of any financial discipline. Although the business now turns over a creditable £3141m, resources are still limited and he is focused on the front line of the high street, rather than big statement projects. For instance, he admits that the decor in his headquarters is still that of the 1970s. Even marketing, branding and shop design, essential issues in a fashion-driven industry, are in-house affairs.
He adds: "At the time of the MBO we were still an own-brand retailer, focused on the lower end of the market."
"I believed we could sell shoes for higher prices, so we introduced new brands into the mix, like Hush Puppies, Wranglers and Lotus. We'd also inherited the Lilley & Skinner name from the wreckage of the British Shoe Corporation, and we built that as a brand of upmarket ladies' shoes. All this has raised our game and raised our basic price."
As with virtually any business you care to mention, Lockyer reckons the basis of Stead's success is its people.
Now this line gets trotted out in business interviews so often that I had started to suspect it was a fundamental part of any basic PR course.
But with Lockyer I feel it's honestly felt. Although it employs thousands and has gone through repeated upheavals, Stead & Simpson remains, at its heart, a local store - a market town shop whose Saturday staff are likely to know the names of the people they serve.
"I spent a lot of time talking to people," he says. "We've a lot of very loyal staff, particularly in the small towns. They're part of the community, who know their own customers, and make them feel they're cared for. That's our real strength."
The latest deal has given Lockyer, an economics graduate, his greatest profile as a businessman - but it is a profile he takes in his stride.
Keen to come across in a coherent fashion, he was extremely well prepared for our interview, having clearly thought hard about what he wanted to say beforehand.
But he shouldn't have thought that hard. After all, Lockyer has been associated with footwear since the cradle. His father worked for 50 years for Clarks Shoes at its headquarters in Street in Somerset - and son would follow father into the same business.
The way he is going, you can quite imagine Lockyer junior clocking up a similar stint in the industry.