He’s the “retail doctor” that companies turn to in times of trouble. Simon Freakley tells Andrew Cave why big-name stores need a revolution.
The High Street as we know it is dead, says Simon Freakley
Simon Freakley is not afraid of being controversial. The chief executive of corporate advisory and restructuring firm Zolfo Cooper Europe thinks high streets outside London are dead and will never recover their former glories.
Freakley, 50, is also sceptical about the future for Marks & Spencer and other mid-market retailers and believes Britain’s commercial property industry has hardly changed since the Magna Carta and needs reform.
These are provocative views and more so because Freakley is far from a disinterested observer. His firm specialises in retail as well as the financial services, leisure and automotive sectors and has run high-profile high street administrations including Clinton Cards, Habitat, Hawkin’s Bazaar and womenswear chains Jane Norman, Fenn Wright Manson and Ellie Louise.
He is clear about the reasons for such collapses – generally bad management, failure to grasp the opportunities presented by the internet and social media, and being squeezed by converging retail sectors. He is the retail doctor and sometime undertaker, and as such his opinions matter.
Take Clinton, which Zolfo Cooper sold in June to American Greetings, its main supplier of greeting cards, after axing 380 of the group’s 780 shops and shedding 3,000 of its 8,000 jobs.
“It had been very profitable,” says Freakley. “But it grew very fast and took on a lot of leaseholds, many of which, frankly, were over-rented. When trading conditions got tough, the property costs were killing the business. The chain’s estate was ludicrously out of step with market requirements.
“In some large shopping mall locations, there were as many as four Clinton Cards stores. You don’t need to be a retail expert to work out that that’s a massive oversupply issue.”
Freakley says retail management teams are “behind the game” unless they’re on the cutting edge of online marketing and distribution strategies with a strong grasp of social networking that’s not just about Facebook and Twitter but also location-based sites such as Foursquare and content sharing service Pinterest.
“That’s what the really smart people are doing in the retail sector,” he says. “It’s absolute hand-to-hand combat between retailers out there in terms of who gets the customer and who doesn’t.
“Increasingly people are making their purchases at places like Westfield and the bigger out-of-town shopping centres, rather than shopping on the high street.”
Freakley’s analysis is that while the value and luxury parts of Britain’s retail sector are holding their own in the recession, the mid-market and upper-mid-market sectors are under pressure.
“If you look at the Austin Reeds, the Jaegers and the Aquascutums… they haven’t been smart enough and quick enough at moving their strategy…
“I think it’s one of the most pressurised places to be in the high street right now. M&S is in that space. I think it’s going to find it increasingly difficult to compete against value plays in its propositions.
“That business has to be fundamentally repositioned over the next few years. It’s lost its bellwether crown to John Lewis. What was once smart, refreshing and invigorating now looks stale.
“Marks & Spencer is a supertanker. It takes some time to turn around and what it needs is strong and visionary leadership.”
Is the current M&S chief executive, Marc Bolland, up to the task? “I don’t know,” says Freakley carefully. “I think the jury’s out actually.”
Freakley is a 28-year veteran of Britain’s insolvency scene, having run the corporate restructuring business of Arthur Andersen in the early 1990s before selling it to corporate investigations group Kroll, which was in turn bought by insurance brokerage Marsh & McLennan.
He stayed throughout and in 2008 led a buyout, renaming it after the European operations of US corporate restructuring business Zolfo Cooper, which he had bought for Kroll in 2003.
Zolfo Cooper famously handled the restructuring of Enron, and its US operation, with 60 people in New York, is now run as a sister business to Freakley’s operation, while another sister partnership is based in the Cayman Islands and British Virgin Islands.
Freakley is at pains to point out that retail is only a part of his firm’s remit, as are insolvencies, with Zolfo also undertaking other corporate and pensions advisory work.
However, the retail administrations are what has given the firm its media profile and Freakley certainly holds outspoken views on the future for Britain’s high streets.
“Outside London, the world is very, very different,” he argues, saying how he was shocked by a recent drive through Croydon.
“Quite a lot of retail space is now being converted into residential. There are only so many charity shops and newsagents that you can put on a secondary high street.
“These units that have stood empty for so long are now finding alternative use and secondary residential is one of the ways that’s happening.
“I think that’s going to be an issue outside London. The high street as we have known it in secondary towns is largely dead, I think it will be redefined.
“I don’t think many of those units will ever be occupied again by commercial retail space. People’s buying patterns have forever shifted.”
Freakley argues that it is not the volume of Britain’s retail sales that’s the problem – total retail sales in the UK have actually risen by about 3pc in the past year – the issue is where they are taking place.
Some 10pc of all retail sales now happen online, and major edge-of-town shopping centres are stealing market share from provincial high streets.
“Those online sales are not coming back to the high street,” he says, going on to disparage the Government’s £5.5m package of support to help revive nearly 400 ailing British high streets under a plan suggested by Mary Portas, the retail expert dubbed the “Queen of Shops”.
“There will never again be the amount of retail activity that there has been on the British high street.
“I think the Portas report reflects a lot of wishful thinking. I don’t think it’s a strategy that’s going to re-establish the high street to its former glory.”
He expects the effect of the Olympics in keeping visitors out of central London for two weeks in mid-summer will soon find its way into retail profit warnings later this year.
So are we going to see another spate of retail failures? Freakley thinks it is possible.
“The difficulty is when you get into a situation where your profits really only allow you to service your interest, rather than pay down your debt or do some of the more expensive restructuring that’s fundamentally required to turn around the fortunes of your business.
“For retail operations, property is their biggest cost along with labour but their ability to buy themselves out of or renegotiate their property costs sometimes is limited because they don’t have the working capital to do it.
“Landlords have pretty much had their own way since the Magna Carta. In 1215, enshrining property rights at the hands of the landowners at the time seemed a very good idea. In 2012 where we’ve still got quarterly rental payments with upward-only rent reviews and rent paid in advance, it’s an absolutely outdated model.
“Other than in the super-prime areas, I think landlords are going to have to fundamentally rethink the way the contract between themselves and their tenants works. You’ll see more turnover-based rentals and monthly rentals or maybe even shorter-term ones.”
It should all mean plenty more work for the likes of Zolfo Cooper but Freakley insists that the firm keeps more businesses alive than it helps to dismember, saying that most of the firm’s work never gets announced.
“Frankly, if you can get into these businesses early enough, you can make a difference,” he says. “You can change the trajectory they are on.”
Is it frustrating then to be seen as an axeman? “Sometimes, yes. Most of the stuff we do is quite complicated surgery but much of that necessarily remains below the waterline. We pride ourselves on the fact that we’re able to solve these problems before they require more public remedies.”
Published in The Telegraph.
I agree with Simon Freakley on M&S. The service is appalling. Often I go in and there will be one member of staff serving, a long queue and the other tills sitting idle. And even when all the tills are manned, still long queues. The reason is the removal of tills, to be replaced by automated tills, and insufficient check-out staff employed. What this shows is complete and utter contempt for customers.
We used to have bookshops, now we have Waterstone’s, minimum wage staff who unless you are very lucky, know nothing about books, as I learnt last year when I asked about Aleph, a new book from Paulo Coelho. Unfair competion, offering best sellers at half-price or less (a discount not made available to independents), is killing off the few remaining bookshops.
Greedy developers and absentee landlords.
On the street leading down to the church in Godalming was a lovely wholefood shop. It closed its doors last year. Driven out by a greedy landlord who wished to jack up the rent.
In Alton was a lovely wholefood shop. The man running the shop was hoping to continue for a couple of years in the hope of finding a buyer, then retire. The greedy absentee landlord wanted a long-term lease signing. The shop closed last summer, one year on it sits empty.
The High Street is dead, but it did not die of natural causes, nor can we finger the internet, poor service weakened it, but what killed it, a clear case of murder, was greedy developers, High Street retailers and corrupt town planners and councillors in their pockets.
Why would anyone wish to visit a High Street when it is the same Clone Town in Any Town, with every High Street looking the same?
When Costa, indicative of all that is rotten and corrupt about our local planning system, muscle their unwanted way into towns like Totnes and Southwold, then tried to claim they are an attraction for the town, that they bring vibrancy and vitality to the High Street, we have to at best treat it as a sick joke.
Costa though may have taken a step too far. I see parallels with London Greenpeace handing out flyers outside McDonald’s. McDonald’s countered with the McLibel trial which spectacularly backfired on McDonald’s.
Costa trying to muscle their way into Totnes and Southwold has spectacularly backfired on Costa. It has brought them national publicity, all of it bad. They are facing boycotts in both towns.
Costa has also highlighted that the local councils in responsible for planning in the two towns to be not fit for purpose with local councillors failing to act for the locality they are elected to serve.
Not that local councillors failing their local communities is unique to these two towns.
Aldershot used to have a wonderful Victorian Arcade. It was demolished, to be replaced by a plastic replica. The plastic replica, home to small retailers, is now itself facing destruction, to be replaced by a large bar and a High Street chain that keeps prices low by employing slave labour.
Bad planning has destroyed Aldershot.
Nearby Farnborough has fared no better. Planning consent was granted to demolish half the town centre to be replaced by a superstore, an estate of social housing was demolished for the car park.
Farnborough is now a ghost town.
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