CTAC02 4/13/07 17:20 Page 10

Laura Ashley Holdings plc: The Battle for
Survival

On February 1, 1999 Ng Kwan Cheong took over as chief executive of Laura
Ashley Holdings. Cheong was the company’s seventh CEO since the death of
Laura Ashley in 1985. Indeed, the longevity of Laura Ashley CEOs was shortening. John James was CEO from 1976 to 1990, Jim Maxmin from 1991 to 1993,
A. Schouten from 1993 to 1995, Ann Iverson from 1995 to 1997, David Hoare from 1997 to 1998, while Cheong’s immediate predecessor, Victoria Egan, had held the job a mere 5 months.
Top management turmoil coincided with a downward spiral for the company.
In the financial year ended January 31, 1999, sales were down 17% on the previous year, and the bottom line showed a net loss of £33 million. Ng Kwan
Cheong was one of the senior management team of MUI Asia Group – a diversified Malaysian corporation that acquired 40% of Laura Ashley’s equity in
May 1998. He had been chief executive of MUI’s retailing arm, Metrojaya
Berhad, as well as holding board positions with several other Malaysian companies. However, despite considerable senior management experience as well as familiarity with the UK (Cheong was a graduate of Middlesex University), little in his prior career could have prepared him for the situation at Laura Ashley. Despite a succession of restructurings and strategy redirections since 1990, the company continued to bleed cash – cash outflow from operations was £11.4 million during the most recent financial year and MUI’s cash injection of £43.5 million had been absorbed by debt repayment and covering operating losses. Many outside observers wondered whether there was any future for this icon of the 1970s, or whether Laura Ashley Holdings would follow its founder to the grave.

Copyright © 2008 Robert M. Grant
10

case
2

CTAC02 4/13/07 17:20 Page 11

LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

The History
Development of the Business, 1953–1985
Bernard and Laura Ashley began designing and printing scarves and tablemats in their flat in Pimlico, London in 1953.1 The products combined Laura’s interest in color and design with Bernard’s expertise in printing and dyeing. The product range was extended to include Victorian-styled aprons and linen kitchen towels. Laura’s designs drew upon British traditional country styles, patterns, and colors. The designs were mainly floral, and the colors predominantly pastel. They sold mainly to department stores such as John Lewis, Heals, and Peter Jones. In 1957 the Ashleys opened a showroom in London, and in 1961 they transferred their production operations to a disused railway station at Carno, Wales, using a flatbed printing process designed by
Bernard.
The popularity of Laura’s first dress designs encouraged the Ashleys to open a
London retail store in Pelham Street, South Kensington in 1968. Although sales were initially slow, advertisements on the London Underground stimulated a surge of interest in Laura Ashley’s dresses and fabrics. Throughout the early 1970s, the reaction against modernism, pop art, and other trends of the 1960s rekindled a strong interest in the rural English styles and traditions of the Victorian and Edwardian eras.
Laura Ashley’s positioning between English bourgeois tradition and hippie abandon, and her ability to evoke nostalgia for the comfort and simplicity of pre-industrial
Britain placed her styles in the vanguard of contemporary fashion. During the early
1970s Laura Ashley expanded the company’s product range from furnishing fabrics, clothes, and housewares into wallpaper and house paints. What Laura Ashley offered was a coordinated approach to home décor and clothing with a perfect matching of designs and colors across fabrics, wallpapers, paints, and ceramic tiles.
The company expanded internationally with shops in Geneva, Paris, Amsterdam, and Düsseldorf. In Canada, Australia, and Japan licenses were sold to local companies to open Laura Ashley stores. In 1974 Laura Ashley entered the US, initially by licensing McCall’s Patterns of New York to distribute its fabrics, and then with an office and retail store in San Francisco.
The business was highly vertically integrated. By the beginning of the 1980s, almost all products were designed by a design team led by Laura and her son Nick (who became design director in 1982) and 85% of all products were manufactured either in the company’s own plants or by subcontractors. The majority of sales were through
Laura Ashley retail stores. The company became expert in the fast, flexible production of quality fabrics manufactured in small runs. By the early 1980s there were eight garment making-up plants close to Carno in Wales, a fabric plant in Dublin, and two plants in England making home furnishing products and made-to-measure curtains and blinds. Distribution from plants and warehouses to retail stores was done by the company’s own transport division. Products for the North American stores were airfreighted weekly; others were manufactured under contract at a plant in Kentucky.
The distinctive design of Laura Ashley products was extended to the retail stores.
The dark-green Laura Ashley storefronts were clearly recognizable in the high street, and the interiors with their wooden fittings projected an image of quality and homeliness. The company was an early adopter of electronic point-of-sale systems, which linked retail sales to inventory planning, distribution, and production planning. Laura
Ashley also offered mail order sales.

11

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12

LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

The family ownership and management of the group was reflected in relationships with employees. There was a cooperative, non-hierarchical working environment with a high level of job security and generous employee benefits.
Continued growth encouraged the adoption of a divisional structure: in addition to design and production divisions, retailing was organized around separate divisions for the UK, Continental Europe, North America, and Asia-Pacific.
In November 1985, the company went public. The offer for 23% of Laura Ashley
Holdings plc was oversubscribed 34 times. Just 1 month before the public offering,
Laura Ashley died after a fall in her home. The Economist wrote:
Her popularity lay in the taste she stamped on her international empire, not so much for the elegance and smartness as for the prettiness and comfort. Nobody was intimidated by the look or price of a Laura Ashley design. Her home furnishings offered a cheap and feminine alternative to the drab, the posh, and the sternly post-war Habitat Scandinavian. She made it possible to look smart without paying Liberty prices. Her company’s success has been the acceptable face of British capitalism in the past two decades. She was deputy chairman to her husband and her power has been considerable. She prized the loyalty of her staff and cared for their welfare.

Expansion, 1986–1989
Fueled with capital from the public offering, Laura Ashley Holdings launched a new phase of its growth. Between 1986 and 1989 a series of acquisitions extended the product range and geographical scope of the company. These included Sandringham
Leather Goods Ltd, Bryant of Scotland (a knitwear company), Willis and Geiger (a
US outdoor clothing company with both production facilities and retail outlets), and
Penhaligons (an old-established producer of perfumes and toiletries).
The company also continued its internal expansion. In 1985 a 135,000 square foot textile factory in Wales was completed. This increased the company’s production capacity by 50%. The new capacity was supported by heavy investment in a new computer-aided design system, computerized fabric-cutting equipment, and a computerized material-handling system.

Emerging Problems, 1990–1991
The expansion of the late 1980s was followed by a deteriorating bottom line as the
UK recession of 1989–92 coincided with a series of internal difficulties. Problems included: l massive overproduction of Laura Ashley catalogs in 1989; l losses at the Willis and Geiger subsidiary; l delivery of the 1989 autumn range to the retail stores was 3 months late; l manufacturing costs rose with the appreciation of the pound sterling; l rising interest rates boosted borrowing costs; l exceptional charges were incurred from the sale or closure of non-core

businesses, including Penhaligons, Bryant of Scotland, Sandringham Leather
Goods, and the Units chain of stores; l the closure or sale of several production plants.

CTAC02 4/13/07 17:20 Page 13

LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

As the company shifted from expansion to retrenchment, it simultaneously searched for a new design look that would be faithful to Laura Ashley values while appealing to the 1990s consumer. Table 2.1 shows financial performance during the
1990s.

The Iverson Era
In June 1995, Ann Iverson was appointed Laura Ashley’s chief executive. Iverson was one of the most sought-after executives in the retail sector after a successful retailing career on both sides of the Atlantic. She had been a vice president at Bloomingdale’s, the US department store, a senior vice president at Bonwit Teller, CEO of Kay-Bee
Toys, and had led the turnaround of Mothercare, the British mother and baby chain.
With an annual salary of £883,000, Iverson became one of the highest paid retail executives in Britain.
Iverson moved quickly to restructure Laura Ashley’s manufacturing, purchasing, and merchandising. Processes were redesigned, decision-making was centralized, international procedures were standardized, unprofitable businesses sold, smaller shops closed, and cost controls tightened. In March 1996, Iverson outlined her strategy for the future (see Exhibit 2.1).
Iverson’s first year at Laura Ashley was hailed by investors and industry observers as the long-awaited turnaround in the fortunes of the beleaguered group. Business
Week enthused:
Since becoming CEO of Laura Ashley Holdings, plc last July, Ann Iverson has replaced most of top management, cut the payroll, slashed costs, and unveiled an aggressive expansion plan in the US. “I’m the kind of person who has a steamroller behind her back,” says Iverson, 52, who was recruited when shareholders were getting fed up. Now the market’s applauding. On April 18, the company reported pretax income of $15.6 million for 1995, compared with a $46.5 million loss a year before. Since Iverson’s appointment, Laura Ashley’s stock has more than doubled . . . [but] no one knows yet if Iverson can solve the biggest problem: the apparel line with its signature floral prints and long, girlish dresses, is deeply unfashionable in the minimalist 1990s. . . . Iverson acknowledges that the company’s Victorian look is dated, but cites recent research showing that the brand could appeal to 19 million women in America and
Britain. She hopes the new designer she lured from Carole Little, Basha Cohen, will help freshen the line, but still keep the flowing romantic look. More important, she is betting that home furnishings will boost sales. The company’s wallpaper, bedspreads, linens and curtains have proven much more resistant to fashion’s whims than the frocks have.2
Even long-serving Laura Ashley executives were heartened by Iverson’s clarity of vision and effective leadership. Visiting the first of the new-style, large-format Laura
Ashley stores in the US (in North Carolina), Sir Bernard Ashley commented, “I almost cried, it was so marvelous.”
During 1996, the company’s capital expenditures increased as the number of stores and their average size increased. (Table 2.2 shows the expansion in US retail floor space.) However, any prospects of the new strategy delivering improved sale profit performance soon evaporated. Despite the emphasis on expansion in the US, North

13

n.a. = not available.

Turnover
Operating (loss)/profit before exceptional items
Exceptional operating costs
Operating (loss)/profit
Income from associated cos.
Exceptional items
Net interest payable
(5.0)
(Loss)/profit before taxation
Taxation
(7.1)
(Loss)/profit after taxation
Dividends
(4.7)
Retained (loss)/profit
Fixed assets
Net current assets
Long-term creditors
Provisions for liabilities/charges
Net assets
Share capital
Reserves
Equity shareholders’ funds
Employees
Total
Manufacturing
Retail
Administrative
(49.3)
–
(49.3)
–
(49.3)
42.2
27.6
(30.4)
(19.7)
19.7
11.9
7.8
70.1

(31.9)
(1.1)
(33.0)
–
(33.0)
22.0
36.7
(0.9)
(27.4)
30.4
19.9
10.5
19.7
3,657
617
2,415
625

(12.4)
(36.0)
0.5
(11.4)
(2.4)

(2.9)
(16.6)
(0.2)
(13.8)
(1.3)

3,634
582
2,452
600

344.9
(23.6)

1998

288.3
(15.2)

1999

4,104
859
2,592
653

7.7
49.5
49.7
(21.8)
(7.3)
70.1
11.9
58.2
63.0

10.1
(2.4)

16.2
(6.1)

(0.4)
14.4
2.1
0.4
(0.7)

327.6
14.8

1997

4,173
1,019
2,459
695

5.8
45.2
27.0
(0.9)
(8.3)
63.0
11.8
51.2
55.7

7.0
(1.2)

10.3
(3.3)

0.1
9.2
2.0
–
(0.9)

336.6
9.1

1996

4,430
1,010
2,639
781

(31.5)
48.3
43.7
(15.0)
(21.3)
55.7
11.7
44.0
86.1

(31.5)
–

(30.6)
(0.9)

(33.4)
(29.3)
1.5
(1.0)
(1.8)

322.6
4.1

1995

n.a.
n.a.
n.a.
n.a.

0.9
71.7
50.2
(35.1)
(0.7)
86.1
11.7
74.4
85.5

1.1
(0.2)

3.0
(1.9)

–
2.3
1.8
–
(1.1)

300.4
2.3

1994

n.a.
n.a.
n.a.
n.a.

0.7
66.3
53.9
(34.4)
(0.3)
85.5
11.7
73.8
84.8

0.8
(0.1)

1.8
(1.0)

–
1.1
1.5
–
(0.8)

247.8
1.1

1993

Financial year to January 31

n.a.
n.a.
n.a.
n.a.

(9.2)
60.5
52.8
(28.0)
(0.5)
84.8
11.7
73.1
92.2

(9.1)
(0.1)

(9.1)
–

–
(0.6)
1.9
(8.1)
(2.3)

262.8
(0.6)

1992

TABLE 2.1 Laura Ashley Holdings plc: summary of selected financial data, 1989–1999 (£ million)

7,800
n.a.
n.a.
n.a.

(9.1)
67.1
66.9
(41.4)
(0.4)
92.2
11.7
80.5
72.9

(9.0)
(0.1)

(11.5)
2.5

–
3.4
0.1
(2.6)
(12.4)

328.1
3.4

1991

8,350
n.a.
n.a.
n.a.

(9.8)
81.5
n.a.
3.5
2.9
72.9
10.0
n.a.
79.8

(6.8)
(1.7)

(4.7)
(2.1)

–
6.1
(0.2)
(3.1)
(8.6)

296.6
n.a.

1990

8,100
n.a.
n.a.
n.a.

8.4
80.2
n.a.
44.7
2.2
79.8
10.0
n.a.

13.1

20.3

–
23.6
42.0
–

252.4
n.a.

1989

CTAC02 4/13/07 17:20 Page 14

SOURCE: LAURA ASHLEY HOLDINGS PLC, ANNUAL REPORTS.

CTAC02 4/13/07 17:20 Page 15

LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

EXHIBIT 2.1

Ann Iverson’s Strategy

I was delighted to become Group Chief Execu-

their job is, how they are going to be measured

tive in June 1995 because I saw a retail business

and where to go for answers.

that could be fixed and also a brilliant brand

So in my first three months we set about

with great potential. However, it was a time of

making things right. We consolidated design,

great unrest for the organization, as it was show-

buying and merchandising, the pivotal areas of

ing no signs of improvement or turnaround.

our business, into our Fulham office.

The restructuring program announced last

We began the necessary changes in the buy-

year was needed for the business. With that said,

ing process, reducing the width of the product

there were many business issues this program

ranges by 25% and also developing a common

did not address. It only looked at overhead costs,

catalogue worldwide. We delivered the head

it had no retail focus, it identified no change to

count reduction that was identified in the re-

our business processes and nothing was men-

structuring program, changed and eliminated

tioned about sales growth and improving gross

tasks and put the right structure in place. Simply

margins. All of these elements are vital to the

said, we set about establishing a retail culture.

turnaround of this business and if not addressed could allow history to repeat itself.

Additionally, I identified six key initiatives which were critical to the consolidation and

When I joined the business I had many im-

turnaround of the Group. They have proved to

pressions that needed validation. I reacted from

be exactly the right priorities to have aggressively

three different points of reference: as a cus-

focused on for the second half of the financial

tomer, as a non-executive and finally as the new

year.

Group Chief Executive. I saw a business not led by a single point of view; we had multi-design,

These initiatives are ongoing and I would like to describe them:

multi-buying, multi-merchandising and even multi-catalogues. In other words, each market or business cat-

l Product ranges and gross margins.
Improvement of product ranges and gross

egory was defining what they thought the Laura

margins are the most important for topline

Ashley brand was all about. As you and I know,

growth. The key to this is modernizing the

every successful brand has a single message con-

fashion offer in garments and expanding

sistently delivered to their customer. That was

our strengths in home furnishings. The

not the case at Laura Ashley.

improved product offer in fashion will

I also found serious supply chain inefficien-

increase sales and reduce mark-downs and

cies and, most importantly, shops that were too

is absolutely essential for repositioning this

small to show the extensive range in garments

international lifestyle brand. The home

and home furnishings. There were also no clear

furnishings ranges are already very strong

lines of accountability, which is an unproductive

and offer the greatest opportunity for

and demotivating culture to have. It doesn’t

growth. They must be expanded, however,

allow hardworking people to really know what

to reflect the developments in the market

15

CTAC02 4/13/07 17:20 Page 16

16

LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

sector and realize the strength of the Laura

show a potential audience of over 19 million

Ashley brand.

female shoppers. But our shops are too

l Supply chain. Development of efficient

small to even begin presenting the width of

product sourcing is critical in achieving

the range that supports customer

supply chain improvement. This will be

perception and demand. We have started to

accomplished by developing and working

change this and have already opened the

closely with our suppliers so they are more

first of our new shops, much larger in

reactive to the needs of the business.

format, positioned in premier locations.

l Manufacturing review. A total review of

The strategy of the Laura Ashley brand is

manufacturing continues, within the

already clearly defined. We are the quintessential

context of the overall supply chain, focusing

English company with a timelessness and spirit

primarily on home furnishings where we

understood and embraced worldwide. Our re-

produce 80% of our own product. It is

search supports the brand values our customer

essential that we ensure our factories are

identifies with: love of flowers, family, romanti-

competitive as a supplier to a worldwide

cism, freedom and simplicity and the tradition

retailer.

which directly relates to the enduring brand

l Distribution. In the area of distribution, our costs are well above industry standards.

qualities and its uniqueness.
In the past the business has talked too much

Work is being done to reduce these costs

about strategy and not about results. It is time

and we will begin to see these reductions

we delivered to our customers and shareholders.

coming through in the next financial year.

As a retailer I see clearly what needs to be done

We will strive to achieve best practice

and how to do it.

industry standards in this important supply chain category.

l Shop portfolio. The assessment of our shop portfolio with regard to both location and shop size is underway. Increasing the size of our shops is absolutely necessary to remain competitive in today’s retail environment.

The way forward continues to be about focus and implementation of the key initiatives which are fundamental to the Company’s turnaround. Additionally, we have identified two new initiatives, namely: to establish an appropriate infrastructure for licensing, franchising and wholesaling and to build a new mail order business. l The US market. This market should be our greatest vehicle for topline growth and profit improvement. Our brand values,

Source: “Chief Executive’s Statement,” Laura Ashley Holdings

reaffirmed through customer research,

plc Annual Report 1996, London 1996.

American sales fell during 1996. Then, in the spring of 1997, problems of poor coordination caused losses to mount. Overoptimistic sales projections for garments resulted in excessive inventories, while in home furnishings demand was also weak.
Clearance sales during spring and early summer devastated margins. Table 2.3 shows sales by region.
In April 1996, John Thornton, a senior partner at Goldman Sachs, succeeded Lord
Hooson as Chairman of the Board, and in November 1996, Ann Iverson was replaced

CTAC02 4/13/07 17:20 Page 17

SOURCE: LAURA ASHLEY HOLDINGS PLC, ANNUAL REPORTS
1996 –9.

LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

TABLE 2.2 Laura Ashley Holdings plc: retail stores and floor space
Financial year to January 31:

Number of stores

Square footage (000s)

1999 1998 1997 1996 1999
UK
North America
Continental Europe
Total

234
106
69
409

237
132
72
441

189
155
74
418

174
168
76
418

1998

587
561.5
301
379.3
112
114.1
1,000 1,055.2

1997

1996

441.8
349.6
115.9
907.3

394.1
276.8
117.7
788.6

TABLE 2.3 Laura Ashley Holdings plc: sales by product group and by region
(£ million)

SOURCE: LAURA ASHLEY HOLDINGS PLC, ANNUAL REPORTS 1996–9.

UK and Ireland
Year to 1.31.99
Garments
Furnishings
Year to 1.31.98
Garments
Furnishings
Year to 1.31.97
Garments
Furnishings
Year to 1.31.96
Garments
Furnishings
Year to 1.31.95
Garments
Furnishings

North America

Continental Europe

70.0
85.4

37.1
25.9

19.4
21.1

85.9
90.0

57.0
34.5

23.0
24.7

82.3
76.9

49.7
34.5

21.7
24.1

80.8
67.4

60.1
35.9

28.6
31.9

78.3
59.9

61.8
36.6

27.2
30.1

as CEO by David Hoare, formerly a partner with Bain & Company and chief executive of the conglomerate Cope Allman plc.

Retrenchment: November 1996–April 1998
Almost immediately, David Hoare began undoing much of the previous strategy. Plans for new stores were pruned and several existing stores were closed. Attention was focused on cost reduction, particularly on reducing inventory. To staunch losses and raise finance, several manufacturing plants were sold, and a 13% stake in Laura
Ashley Japan Ltd. was sold to Laura Ashley’s Japanese partner Jusco for £9.5 million.
In March 1998, David Hoare reported on his progress since September 1997 and on his plans for the future (see Exhibit 2.2).

17

CTAC02 4/13/07 17:20 Page 18

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LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

EXHIBIT 2.2

David Hoare’s Three-Phase Strategy

I am pleased to have joined Laura Ashley in

London. This program was implemented

September 1997. I am well aware that over the

rapidly without sufficient planning and

past 12 years, since flotation, Laura Ashley’s

knowledge of market conditions and with

financial performance has been most disap-

an inadequate supply chain. Costs,

pointing. A number of serious problems face our

particularly rents, have increased whilst

business and need to be addressed. However, we

sales have not grown significantly.

have an opportunity to build a successful business on the back of a strong international brand.

Overall, these problems led to a shortfall in sales against expectations and excess stocks in both garments and home furnishings, across all

Key Problems Facing Laura Ashley l Complexity of the Business. Laura Ashley is too complex for a business of its size.
We attempt to be experts in design, manufacturing, distribution, retailing in 13 countries, franchising, licensing and mail order. Our management information systems are outdated and our cost base is too high. We have not been sufficiently focused on our core competencies of brand management and retailing.

l Garment Design. Over the past three years, the garment range has been repositioned

markets, which was cleared throughout the year with heavy discounting. As a result, gross profit margins reduced by 10% from 48% to 38% on sales of £345 million, a £34 million adverse gross profit variance. In addition, operating costs rose by 8% or £11.5 million, principally due to a 16% increase in floor space in North America and the
UK. As a result, we have reported an operating loss before exceptional items and tax of £25.5 million for 1997/98 against £16.2 million profit last year. In addition, exceptional charges of
£23.8 million have been taken mainly to restructure our North American and manufacturing business. towards the High Street and a younger market. However, it has been taken too quickly and too far in this most competitive

Recovery Program

sector of the market. We have confused our

Whilst it is clear that we have had a number of

loyal customers and not attracted sufficient

significant problems at Laura Ashley, and that

new ones.

it will take time to fix them, it is also clear

l North American Expansion. In 1996, we

that there are great opportunities for our busi-

operated 168 stores in North America, with

ness. Laura Ashley is one of the best known

an average size of 1,600 sq. ft. This small-

international brand names, representing the

store format was not profitable. Over the

quintessential English country lifestyle. We trade

past two years our North American store

in 34 countries, in over 550 owned and franch-

portfolio was restructured by closing 68

ised stores. We have a base of loyal customers

smaller stores and opening 32 larger stores

who, though disappointed in the recent past,

(5,000 sq. ft.) in prestige mall locations.

will return provided we can develop products

Store merchandising was centralized in

and services that meet their aspirations.

CTAC02 4/13/07 17:20 Page 19

LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

In order to tackle our current problems and

proceeds of 9.5 million pounds. The transaction

take advantage of the significant opportunities,

included a revision of the terms of the license

we have put in place a three-phase recovery plan

agreement between us.

to be implemented over the next five years.

l Phase I. Stabilize the Business

Phase II

– stop significant new store development

Progress has also been made in improving the

– rebuild the senior management team

profits of the existing business. Following our

– generate cash by reducing stocks and

January 1998 end of year sale, we returned to

selling non-core assets
– raise additional finance

l Phase II. Improve the Profitability of the

more normal full price retailing with occasional marketing promotions. We recognize that our garment range has moved too far towards the

Business

High Street and a younger market and has lost

– return to full price retailing

an element of its Laura Ashley signature. We are

– redesign the product to meet the wishes

redesigning our product range, which, because

of our core customers

of lead times, will be only partly evident in our

– fix the North American retail business

Autumn/Winter 1998 collection. More substan-

– reduce business complexity and costs

tial change will be seen in Spring/Summer 1999.

– invest in systems

l Phase III. Grow the Business
– focus on core competence of brand management North America remains a major challenge.
Our business there has suffered disproportionately from the problems affecting the Group.
The product range was not right, the large-stores format did not work and the complexity of

– build our brand internationally with new

the business led to severe supply problems.

products, new distribution channels and

Significant losses were incurred. However, re-

new partners

search shows that there is a major opportunity in North America for lifestyle brands aimed at

Phase I

discerning 30–50 year old customers, and we believe that our quintessential English country

In late 1997 and into 1998 good progress was

brand can succeed in this market.

made to stabilize the business. Store expansion

In order to fix our North American business

was stopped, and we refocused on managing

. . . a decisive program of restructuring, cost

the existing business. Our worsening trading

reduction, store closures and carefully targeted

position in the autumn of 1997 required us to

new investment will be required. As part of this

renegotiate with our banks. They supported us

program, we intend to close a number of larger

with a 15 month £170m bank facility through to

stores while investing in information systems,

April 1999. Cash outflow was minimized by re-

store refurbishment and brand development.

ducing year end stock by 32% from £93 million

Throughout the Group, our overheads are too

to £63 million. In addition, following the year

high, partly as a result of the complexity of the

end, we announced the sale of part of our share-

business and partly due to the weakness of our

holding in our Japanese licensee, Laura Ashley

systems which require significant investment.

Japan, to Jusco, the majority owner . . . in a

Some steps have been taken to reduce costs but

transaction which realized aggregate gross

greater progress will need to be made in 1998.

19

CTAC02 4/13/07 17:20 Page 20

20

LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

As a first step to simplifying our business we announced, in January 1998, our intention to sell our manufacturing operations with a continuing supply agreement.

Equity
In the light of last year’s results, the investment need in North America, the opportunities in the rest of the business and the current levels of debt, we have added additional equity capital

Phase III
We have significant opportunities to expand our franchise, license and wholesale activities internationally. In 1997/98 we opened 22 new franchised stores. In addition, we continue to expand our range of licensed products. However, we will pursue this expansion program only once we are

essential to improve the financial stability and operational health of the Group. On 17 April
1998 we announced that we intend to raise new equity of £43.7 million net in a subscription by the Malayan United Industries Group. The Board believes that raising this new equity is essential in order to implement the recovery plan.

satisfied that we have the right product, service and infrastructure to give the required levels of

Source: Extracts from the “Chief Executive’s Statement,” Laura

support.

Ashley Holdings plc Annual Report 1998. London 1998.

By the end of 1997, Laura Ashley’s need for new financing became increasingly evident. Debt had more than doubled to £30.6 million and renegotiation of the company’s bank facility had resulted in an agreement that Laura Ashley could use within the business the £9.5 million received from the sale of shares in Laura Ashley Japan, but could not draw further on its banking facility, and nor could it use funds from outside of North America to fund continued losses within North America.

MUI to the Rescue
In April 1998, the Board agreed to increase the issued equity of Laura Ashley Holdings and to sell the new equity to the MUI Group, a diversified Malaysian group with interests in retailing, hotels and resorts, food and confectionery, cement and building materials, real estate, and financial services. After the equity sale, MUI would own
40% of Laura Ashley’s equity and would appoint four board members. Mrs Victoria
Egan, president of MUI’s retail subsidiary in the Philippines, would become chief executive and Mr Paul Ng Tuand an Tee, executive director of Metrojaya, would become President of Laura Ashley North America.
The £43.5 million that the equity sale would raise (net of expenses) put Laura
Ashley on a sounder financial footing. Extensive restructuring and repositioning were needed, especially in North America. (Tables 2.4 and 2.5 show the deteriorating financial performance of the North American business, while table 2.6 shows performance by business segment.) The North America recovery program would require about £20 million (mainly for store closures) and £6.5 million was needed to upgrade its logistics and information systems. The Board agreed with its banks to reduce its existing
£50 million revolving credit facility to £35 million pounds by the end of 1998.

CTAC02 4/13/07 17:20 Page 21

LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

SOURCE: LAURA ASHLEY HOLDINGS PLC, ANNUAL REPORTS 1999 AND 1998.

TABLE 2.4 Laura Ashley Holdings plc: retail sales and contribution by geographical segment (£ million)
UK and
Ireland
Turnover
Year to Jan. 31, 1999
Year to Jan. 31, 1998
Year to Jan. 31, 1997
Contribution
Year to Jan. 31, 1999
Year to Jan. 31, 1998
Year to Jan. 31, 1997

North
America

Continental
Europe

Total retail 155.4
175.9
159.2

63.0
91.5
84.2

40.5
47.7
45.8

258.9
315.1
289.2

15.0
14.9
24.5

(7.1)
(12.9)
7.6

6.9
7.3
10.7

14.8
9.3
42.8

TABLE 2.5 Laura Ashley Holdings plc: sales, profit, and net assets by geographical segment (£ million)

SOURCE: LAURA ASHLEY HOLDINGS PLC, ANNUAL REPORTS 1996 –9.

Year to
1.31.99
Sales:
UK and Ireland
North America
Continental Europe
Other
Profit before tax (after exceptionals):
UK and Ireland
North America
Continental Europe
Other
Net assets:
UK and Ireland
North America
Continental Europe
Other

Year to
1.31.98

Year to
1.31.97

Year to
1.31.96

Year to
1.31.95

176.1
68.2
42.5
1.5

197.2
96.4
50.2
1.1

175.1
92.7
57.7
1.1

160.0
104.6
65.8
1.3

145.2
107.0
57.4
0.9

(21.7)
(20.0)
10.7
(0.9)

(12.6)
(29.4)
(7.8)
0.5

8.6
3.3
1.4
3.2

(0.5)
1.7
5.6
3.5

(29.5)
(1.2)
(0.8)
1.6

(3.6)
(5.6)
38.0
1.6

16.0
(18.6)
19.9
2.4

25.7
11.4
29.2
2.3

15.4
13.3
32.5
1.8

14.1
14.3
26.4
0.9

Victoria Egan’s approach was to continue with the three-phase strategy developed by the previous CEO with a particular emphasis on reducing losses, restructuring the
North American business, and disposing of assets. In August 1998, a reorganization plan was announced, involving the creation of three profit centers: Europe, North
America, and Franchising. A £2.5 million provision was made to cover the redundancy costs associated with this reorganization. However, during 1998, the business continued to deteriorate – especially in the US. (Tables 2.4 to 2.6 show financial performance by region.) Although inventories were reduced and the costs of closing
US large-format stores remained within budget, sales were sharply lower than the

21

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LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

TABLE 2.6 Laura Ashley Holdings plc: sales, contribution, and net assets by business segment (£ million)
Year to 1.31.99
Turnover:
Retail
Non-retail
Contribution:
Retail
Non-retail
Net assets:
Retail
Non-retail

Year to 1.31.98

Year to 1.31.97

258.9
29.4

315.1
29.8

289.2
22.9

14.8
7.8

9.3
7.6

42.8
12.1

14.6
15.8

(0.6)
20.3

40.7
27.9

Retail includes Laura Ashley managed retail stores and mail order. Non-retail includes wholesale, licensing, franchising, and manufacturing.

year-ago period. The half-yearly results (to August 1, 1998) were greeted with a fall in Laura Ashley’s share price to 17 pence – an all-time low.

February 1999
As he prepared for his first board meeting as group chief executive of Laura Ashley
Holdings, Ng Kwan Cheong reviewed the company’s financial statements for the financial year ended January 31, 1999 (see Appendix). His immediate concerns were for Laura Ashley’s cash position. MUI had pumped £43.5 million into Laura Ashley in order to underpin its recovery program. This sum, plus the £7.9 million raised from the sale of 13% of Laura Ashley Japan, had been eaten up by debt repayment, restructuring and closure costs, and continuing operating losses. With continuing operating losses together with the need to close unprofitable stores, and refurbish profitable stores, Laura Ashley would need to find new sources of finance during the coming financial year. Given the weakness of Laura Ashley’s balance sheet and the continuing cash drain, it was unlikely that the banks would be willing to lend. It seemed as though the parent company, MUI, was the only possible source of additional funding. With Chairman John Thornton stepping down to become president and chief operating officer of Goldman Sachs, and MUI’s Khoo Kay Peng taking over his position and chairmanship of Laura Ashley, this might be an opportune moment to press MUI for additional funding.
But did it make sense for MUI to continue to invest in Laura Ashley? Despite an improvement in margins, sales had continued to decline. Did a profitable market exist for Laura Ashley products? If so, was this market primarily within Britain, or did it extend overseas? And how could Laura Ashley best access and develop this market? SOURCE: LAURA ASHLEY HOLDINGS PLC, ANNUAL REPORTS 1998 AND 1999.

22

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LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

Appendix
TABLE 2.A1 Laura Ashley Holdings plc: profit and loss statement (£ million)

SOURCE: LAURA ASHLEY HOLDINGS PLC, ANNUAL REPORTS 1997–9.

Year to 1.31.99
Turnover
Cost of sales
Gross profit
Operating expenses
Other operating income
Operating profit/(loss)
Share of operating (loss)/profit of associate cos.
Profit on sale of investment in associate Profit on sale of freehold property
Amounts written-off investment
Provision for disposal of businesses
(Loss)/profit on ordinary activities before interest
Net interest payable
(Loss)/profit on ordinary activities before taxation
Taxation on (loss)/profit on ordinary activities (Loss)/profit on ordinary activities after tax
Dividend
Retained (loss)/profit for the period

Year to 1.31.98

Year to 1.31.97

288.3
(159.9)
128.4
(146.5)
1.5
(16.6)
(0.2)

344.9
(214.0)
130.9
(166.9)
–
(36.0)
0.5

327.6
(168.9)
158.7
(144.3)
–
(14.4)
2.1

7.5

–

–

2.0
–
(23.3)
(30.6)

–
(2.4)
(9.0)
(46.9)

–
–
–
16.9

1.3
(31.9)

2.4
(49.3)

0.7
16.2

(1.1)

0.0

6.1

(33.0)

(49.3)

16.2

0.0
(33.0)

0.0
(49.3)

2.4
7.7

TABLE 2.A2 Laura Ashley Holdings plc: balance sheet (£ million)
At 1.31.99
Fixed assets
Tangible fixed assets
Investment in associated undertaking
Own shares
Total
Current assets
Stocks (inventories)
Debtors
Short-term deposits and cash
Total

At 1.31.98

At 1.31.97

19.5
1.7
0.8
22.0

38.9
2.5
0.8
42.2

44.0
2.2
3.3
49.5

56.4
19.7
8.4
84.5

63.2
21.2
10.2
94.6

93.1
24.4
6.2
123.7

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CTAC02 4/13/07 17:20 Page 24

LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

TABLE 2.A2 continued
At 1.31.99
Creditors: amounts due within one year
Borrowings
Trade and other creditors
Total
Net current assets
Total assets less current liabilities
Creditors: amounts due after 1 year
Borrowings
Trade and other creditors
Total
Provisions for liabilities and charges
Net assets
Capital and reserves
Share capital
Share premium account
Profit and loss account
Equity shareholders’ funds
Ordinary shares issued (millions)

At 1.31.98

At 1.31.97

0.1
47.7
47.8
36.7
58.7

9.9
57.1
67.0
27.6
69.8

0.0
72.6
74.0
49.7
99.2

0.0
0.9
0.9
27.4
30.4

29.2
1.2
30.4
19.7
19.7

21.0
0.8
21.8
7.3
70.1

19.9
87.1
(76.6)
30.4
398

11.9
51.6
(43.8)
19.7
236

11.9
51.5
6.7
70.1
236

TABLE 2.A3 Laura Ashley Holdings plc: cash flow statement (£ million)
Year to 1.31.99 Year to 1.31.98 Year to 1.31.97
Net cash flow from operating activities
Returns on investments and servicing of finance:
Interest received
Interest paid
Interest element of lease payments
Dividends received from associates
Net cash outflow for returns on investments and the servicing of finance
Tax paid
Capital expenditure and financial investment: Acquisition of tangible fixed assets
Disposal of tangible fixed assets
Net cash flow for capital investment
Acquisitions and disposals
Equity dividends paid
Net cash outflow before financing

(11.4)

5.2

(0.7)

0.5
(1.6)
(0.2)
0.1
(1.3)

1.2
(3.3)
(0.3)
0.2
(2.2)

0.8
(1.2)
(0.3)
0.1
(0.6)

(1.6)

(5.5)

(1.6)

(3.9)
4.6
0.7
7.9
–
(5.6)

(9.6)
0.1
(9.5)
–
(1.4)
(13.4)

(14.2)
0.2
(14.0)
–
(2.1)
(18.8)

SOURCE: LAURA ASHLEY HOLDINGS PLC, ANNUAL REPORTS 1997–9.

24

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LAURA ASHLEY HOLDINGS PLC: THE BATTLE FOR SURVIVAL

SOURCE: LAURA ASHLEY HOLDINGS PLC, ANNUAL REPORTS 1997–9.

TABLE 2.A3 continued
Year to 1.31.99 Year to 1.31.98 Year to 1.31.97
Financing:
Issue of ordinary share capital
Expenses of share issue
Settlement of currency swaps
Loans taken out
Repayment of loans
Capital element of lease payments
Net cash inflow from financing
Increase in cash

44.6
(1.1)
–
–
(39.0)
(0.8)
3.7
(1.9)

0.1
–
0.5
18.1
–
(0.9)
17.8
4.4

1.4
–
4.0
21.0
(5.0)
(1.2)
20.2
1.4

TABLE 2.A4 Financial ratios: Laura Ashley compared with other clothing retailers SOURCE: LAURA ASHLEY HOLDINGS PLC, ANNUAL REPORTS 1997–9.

Laura
Ashley
Sales ($, m.)
Gross profit margin (%)
SGA/Sales (%)
Operating margin (%)
Net profit margin (%)
Inventory turns*
Total asset turns*
Current ratio*
ROE (%)*

Talbots

Next plc Ann Taylor
Stores

The
Limited

Monsoon plc 478
44.4
50.8
(5.8)
(11.5)
5.1
2.7
1.8
(108.6)

1,142
34.4
28.5
5.9
3.2
6.6
1.7
2.4
9.1

2,041
30.1
17.6
12.7
10.0
8.7
1.5
1.8
22.8

912
48.8
38.4
10.4
14.3
6.6
1.2
2.3
7.9

9,347
32.1
24.6
7.5
22.0
7.6
2.8
1.0
72.0

212
61.0
45.0
15.1
9.9
10.2
2.5
1.3
47.5

*Based on balance sheet values.

Notes
1 This section draws upon “Laura Ashley: History,” Laura
Ashley Holdings plc; and J. L. Heath, Laura Ashley
Holdings PLC (A) and (B), European Case Clearing
House, 1991.

2 “Giving Laura Ashley a Yank,” Business Week, May 27,
1997, p. 147.

25