There is an old poker-school saying that, if you can’t spot the sucker around the table, then it’s you. One wonders what went through the mind of Liam Strong, the dour chief executive of fragmented retail chain Sears, when he sat down at the negotiating table last year with the irrepressible Stephen Hinchliffe, founder chairman of the rather more repressible Facia Group.
Possibly very little. As one Sears spokesman recently put it, a sale of Sears’ shoe-shop interests to Facia was the only option on offer: “It was that or close them down.” If you’ll forgive the expression, the deal was a shoo-in.
There is another rule of poker: never bet with unpaid debt. In other words, always collect before raising the stakes. Again, I wonder whether Strong has been observing the laws of gambling. As he sought to put shoe stores that he had “sold” to Facia into administration last week, it may well have crossed his mind that the other option identified by the Sears spokesman – to close them down – might, after all, have not been such a bad one. But if you sit at the table, you have to play – and Sears will now be counting the cost.
The story so far: last August Sears sold a clutch of shoe-retailing interests to Facia, with an agreement to throw Saxone into the bargain last February. I used inverted commas in the previous paragraph because the deal was not one that would widely be understood as a sale – Sears still owned all the stock in shoe stores such as Saxone, Curtess and Freeman Hardy Willis; still paid the staff on promise of reimbursement by Facia and continued to own the leases on all the stores.
Still, management of the stores was being passed to Hinchliffe and his colleagues and at least there was rent to collect on the stores. Or so Sears thought. Last week, matters grew distinctly wobbly and Sears started legal action on Friday to have Price Waterhouse appoint administrators to Facia.
Sears’ loss of confidence in its trading partner had some fairly strong justification. The Department of Trade & Industry has ruled that Hinchliffe is unfit to be a company director and should be banned; he has so far failed to secure some 40m that Facia requires; he has emerged as the former owner of three collapsed companies in 1994 and has been endeavouring to transfer Facia’s operations to a US company run by a former bankrupt whose CV includes conducting the PR for fugitive entrepreneur Asil Nadir.
Investors have been known to lose confidence in companies for less – a new fountain in reception, for instance, or a personalised numberplate on the chairman’s limo. And, stylistically, Hinchliffe would appear to have provided some of these sorts of clues. There were baronial halls as corporate headquarters, classic car collections and private jets and helicopters.
None of which constitutes grounds for condemnation. But have we learned nothing from the soaraway Eighties? Since the days when Coloroll’s John Ashcroft, British & Commonwealth’s John Gunn or, for that matter, Polly Peck’s Asil Nadir swaggered on to the corporate scene and lived high on the Thatcherite hog, there has emerged a suspicion of the “colourful” entrepreneur. We may regret the passing of such entertainment in the climate of the more austere, drab and greyer Nineties, but we should question the motives of those who seek to flout current convention and those who continue to buy their image as something of substance.
Anyway, as Sears raised the stakes on Friday, the game proved altogether too much for another Facia investor, Israel’s United Mizrahi Bank, which appointed receivers to Facia at the weekend, effectively collapsing the company with debts of 30m. Facia has, apparently, lost some 9m over the past four months.
But that is nothing compared with the 25m exceptional charge that Sears took on Friday to cover property sales and Facia’s debts. Sears needs that like a hole in the head. Especially after a year in which it appears to have had its head in a hole.
Last year, Sears’ Miss Selfridge stocked a disastrous summer collection that played a part in a 28 per cent downturn in interim profits. We knew then that things were going to look grim for Sears at the full year and we weren’t disabused of that notion.
Even laying aside the 220m losses on business disposals and reorganisation costs, the results were ghastly with underlying trading profits down 24 per cent at 111m. Blackspots were British Shoe Corporation, where profits fell from 38.1m to 7.5m after poor performance from Dolcis; women’s fashion dropped 28 per cent to 16.5m and mail order house Freemans saw profits fall by eight per cent.
The interim statement from Sears at the end of the summer should make interesting reading, especially in light of the exceptional item just forced by the Facia circumstance.
It may prove that Facia is the latest in a long line of misjudgments at Sears when shareholders are entitled to sound judgment from their management. Liam Strong will have to reassure them of such judgment and he may be running out of time.