Burton Group steps out on the yellow brick road to recovery

You may recall that three creatures accompanied Dorothy in her quest for the Wizard of Oz: a lion with no courage, a tin man with no heart and a straw man with no brain. Now, imagine you are that little girl. Who would you cast as your companions if you only had retailers to choose from?

The lion might be Bill Cockburn, scarpering from WH Smith to a cushier number at BT. The tin man could be Brian McGowan, chairman of House of Fraser, whose despatch of senior executives who don’t make him look brilliant, plus the austerity of the stores over which he presides, may lead us to speculate as to what – if anything – beats in his breast. When it comes to the man of straw, we’re spoilt for choice, but there are few institutional shareholders in Sears who would object to the role being given to Liam Strong.

It is unlikely that John Hoerner, Burton’s chief executive, would be considered even at audition level for any of these parts. He has shown great courage – over a period that ran concurrently and in stark contrast to Strong’s tenure of Sears – in bringing Burton Group back from the brink and to fragile prosperity.

His achievement in bringing centralised efficiencies to bear while maintaining the distinct characters of the stores within a varied group shows that he has a retailer’s heart. And, as for brain, when Hoerner arrived in 1992, Burton had just made a loss of 13.4m, despite a 161m cash call on shareholders; in May, interim profits were up (again) by 23 per cent at 108m. Enough said.

Now this American wizard has announced that he intends to spin off Debenhams, the flagship department store that Sir Ralph Halpern went to so much trouble to acquire for 560m in the mid-Eighties. The City loved it. Market-makers marked up Burton’s shares by ten per cent on the news of the break-up last week. Such is the power of unlocking shareholder value.

But wait. If, contrary to the old song, breaking up is so easy to do, why hasn’t Hoerner done it before? And break-ups in retail do not necessarily deliver value – witness the unbundling of House of Fraser from Harrods.

So I am suspicious of Hoerner’s motives for this move. It’s not as if recent history demonstrates he has an unbridled enthusiasm for the kind of demergers that have been visited on the likes of Hanson and Thorn-EMI. Hoerner, we are told, has returned to a strategy that was devised and rejected in 1993.

It was codenamed Wizard and involved splitting Britain’s second-largest clothes retailer into two parts – Debenhams and the rest.

The trouble was that the rest – multiples Dorothy Perkins, Burton Menswear, Evans, Top Shop and Principles – were not considered to be in sufficiently rude health to make it on their own.

That’s fine and dandy, and I do see that a case can be made for that being then and this being now. A return of consumer confidence on the back of a recovering economy means that the rump of Burton now has better prospects after the departure of the Debenhams mother-ship.

But what I don’t buy is that Hoerner was simply waiting for a return of the elusive feelgood factor before deploying Wizard.

He is too much of a forward-thinker and planner. If it’s the right thing to do now, when demerger is in high fashion as a management technique, then it is precisely the sort of thing that a manager of Hoerner’s calibre would have done four years ago to steal a march on retail rivals.

I wonder whether he had doubts of principle, as well as timing, when he shelved Wizard in 1993. Furthermore, since Wizard was originally mothballed (and during which time the five multiple divisions admittedly returned to profit), Hoerner commissioned a different sort of study. Called Oz (geddit?), this was a scheme to cut the group’s cost-base by combining the support operations of its constituent parts.

It seems to me that you don’t start to rationalise and combine resources in a group that you intend to demerge. So perhaps we should look elsewhere.

As is so often the case with public companies, the answer may be in the share price. After a strong run that reflected all that Hoerner was achieving at Burton, the shares started to soften earlier this year. Despite those strong interim results in May, institutional share buyers did not show themselves.

A briefing offensive was launched on analysts. Still nothing. Last month, Burton fell out of the FT-SE 100 index of leading shares. The new Labour Government’s hands-off interest-rate policy has also done nothing to lift the shadow over retailers. So Hoerner has revisited Wizard. And it’s worked. The shares have risen. But I don’t think Hoerner is a man driven by management fads. And I’m not sure that his heart is in it.

There may be less magic in Wizard than there was in Oz. And Hoerner may care to reflect that, when the pilgrims finally arrived, the Wizard of Oz talked big, but was of no real consequence.