A spate of shuffling pricks up City ears

GUS’s decision to divest Burberry and Experian raises the interesting question of why they were part of the group in the first place. All right, GUS is sort of about retail – hence Argos and the much more recently acquired Homebase. And there’s a tenuous connection between Burberry and a fashion business based around catalogues. Then again, if you own mail-order catalogues, perhaps it makes limited sense to add a data-collection company like Experian (though its principal value is in credit rating). But taken as a whole, the brand fit of these companies is pretty flimsy, and the synergy of owning them seems to have to have had no other origin than in the minds of the GUS-owning Wolfson family. So it is no surprise to find the first non-family chief executive, John Peace, engaged in a divestment strategy.

Note, however, that divestment is not a policy of financial despair. The Wolfsons’ logic may have been opaque, but it certainly brought results. And nowhere more so than in the case of the soon-to-be spun-off Burberry. Under the stewardship of US retailer Rose Marie Bravo, it has been transformed (despite the chav sideshow) into a global brand whose turnover has nearly trebled since 2000, and whose profitability has increased nearly eightfold.

Sadly, most brand conglomerates have not performed nearly as well as GUS. The reason is not difficult to spot. Many are the brainchildren of ambitious entrepreneurs (Sir James Goldsmith and Lord Hanson being eminent examples from the past), more interested in short-term financial returns than long-term brand equity. But ‘bundling’ is at least as much about sophisticated financial engineering by artful investment bankers desperate to maximise their own returns as it is about individual corporate ambition. How else to explain the curious logic of Asda linking up with MFI in the 1980s? Or how about Boots’ ill-fated sally into car accessories (Halfords) and DIY (Do-It-All) under Lord Blythe?

Occasionally, just occasionally, City and brand agendas manage to work harmoniously together. One such example was the Kingfisher group, which at its height included B&Q, Comet, Superdrug and Woolworths. True, all four cylinders did not fire with unfaltering rhythm but, overall, the group certainly benefited, until the early 1990s, from the strategic direction given it by the UK’s then-leading retailer, Sir Geoffrey Mulcahy.

As the latter-day history of Kingfisher shows, even successful portfolio marriages flower only for a time. It may be that Burberry has developed so far from its original self that it would fit better in a very different portfolio, like that of luxury brands company Moët Hennessy Louis Vuitton (itself a brand conglomerate put together by French billionaire entrepreneur Bernard Arnault).

Burberry, of course, is only one of the many brands that are being reshuffled as further consolidation takes place – Heinz and Unilever being two other current corporate shufflers. No wonder that City analysts are calling for greater transparency in the way companies are spending their marketing budgets. Though to what good use their colleagues in the corporate acquisitions department would put that knowledge is highly questionable.

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