Laura Ashley Inc.

Laura Ashley North American Operations incurred major operating losses following a change in its business model and a correlative store expansion strategy implemented by the previous CEO. As part of this new model, all substantive decisions came from a London executive group that did not understand the North American market, and the domestic subsidiary was functioning without a clear leader. The CEO and major lenders were prepared to shut down the North American subsidiary, which at one point had contributed over 50% of the company’s worldwide profits. John Thornton, then head of Goldman Sachs Asia, and the non-executive Chairman, as well as other board members, felt the action was premature. He wanted new management to evaluate the North American business quickly and advise the board on its prospects for recovery.

 

Michael Appel was named interim CEO, with the charge to stabilize operations, evaluate the company’s prospects and, if warranted, formulate and implement a new strategic business plan.

 

An analysis of Laura Ashley North America’s customer demographics, and its major merchandise categories—Women’s, Children’s and Home furnishings—indicated the brand was well positioned to return to profitability. A plan was put in place to stem further profit erosion and stabilize operations in 1998. This was done by accomplishing the following:

 

• Reconfiguring the organization’s structure. An autonomous North American organization was   created to better respond to the local marketplace.

• Driving the Home and Children’s sales volumes immediately, while the Women’s business    would be re-merchandised for the American market for the following year.

• Reducing the expense structure, with particular emphasis on distribution costs

• Liquidating dead and slow moving inventory.

• Closing all uneconomic units while minimizing store-closing liabilities

• Restoring gross margins to historical levels by reallocating inventory levels to a more efficient   mix, taking timely markdowns consistent with the U.S. retail cycle, and using marketing efforts to drive full margin sales.

 

A long-term strategic plan was also proposed to restore business to target rates of profitability and establish the base for future brand expansion into new merchandise categories and new channels of distribution.

 

With support from the corporate office in London, Appel immediately put into effect a marketing and merchandising action plan that reversed the downward sales trend, projecting a fiscal loss less than 50% of what was sustained the previous year. The recovery plan authored by Appel and local management was presented to the Board, which approved it. The Board also agreed to raise capital to finance the recovery plan. The company, with the assistance of Appel, raised $75 million in new equity.