Laura Ashley Holdings

Plc.
The Battle For
Survival

Group

Objective of the Case

Study
The objective of the case study is to:

Questions Posed

+
Strategy

Financial Data

The issues that needs to be addressed:

Summary of the case
Short term problems
Long term problems
Alternatives for short terms & Long
term issues
Recommendations for short terms &
Long term issues
Possible Implementations
Going forward

 Icon of the 1970s and the 80s.

Popularized traditional English Floral designs and pastel colors in
womens clothing and interior furnishings.
Currently in the doldrums due to deteriorating financial
conditions and top management unrest

1998
Enter Malayan United Industries, a Malaysian conglomerate
who had a controlling interest (pumping in 44 million) who
in turn installed a new management.
Though there was fresh injection of equity, but Laura Ashleys
condition was deteriorating by the day.
As of then the company was headed by Mr. Khoo Kay Peng

The Iverson Era

Problems that were emerging during this time:
massive overproduction of Laura Ashley catalogs in 1989;
losses at the Willis and Geiger subsidiary;
delivery of the 1989 autumn range to the retail stores was 3 months late;
manufacturing costs rose with the appreciation of the pound sterling;
rising interest rates boosted borrowing costs;
exceptional charges were incurred from the sale or closure of non-core businesses,
including Penhaligons, Bryant of Scotland, Sandringham Leather Goods, and the Units
chain of stores;
the closure or sale of several production plants.

Ann Iversons Strategy

Improve
product line

Manufacturing
Review

MORE Focus
on the US Market

Prime focus on
By making sure
home
that the womens
wear line reflected
Improve furnishingsShop Portfolio
the
modern
Supply chain
Increase
the
changes
in
&
number of shops
fashion.
as well increase
Distribution
the area of the
Also expanded the By
working
shops.
furnishings
line closely with the
which was already suppliers
strong
involved.
Also
reduce
distribution
costs which is

The age of David Hoare

3
Stabilize
Business
Stop opening
new stores
Rebuild senior
management
team
Raise
additional
finance
Reduce stocks
and sell noncore assets

A complete opposite of Ms. Ann Iverson, Mr.

David Hoare started undoing what Iverson had
done and implemented his 3 Phase strategy
with attention on cost reduction .
Grow the
Business

Focus on core
competence of
brand
management
Increase brand
price retailing
Product redesign portfolio
New distribution
for core
channels
customers
New partners
Fix N.A. retail
business
Reduce business
complexity

Improve
the
Profitability
Return to full

Plans to open new stores were dropped and

multiple existing stores were closed
Key Problem Areas identified:
Too complex a business model with not
sufficient focus on brand management and
retailing
Not enough focus on core customers
Insufficient planning during expansion in
North America
Non responsiveness of the organization

Ng Kwan Cheong and MUI

Problems in the situation at this point :

Financial breakdown in terms of revenue from 336.6 million to 288.3 million almost
14.34% in the last 3 years (table 2.1)
This was despite the fact that UK & Ireland had recorded positive sales growth from
160 million to 176.1 million (table 2.5)
The main reason that can be attributed to this was the 35% decline in sales from the
North American market from 104.6 million to 68.2 million (table 2.5)
Overall performance was dire as we can see that the entire 43.5 million that MUI put
in was used in clearing up the debts.
Further more if we take at the financial ratios as given below:
1999
Net Income ( million)

1998

($33.00) ($49.30)

1996

$10.10

$7.00

$63.00

$55.70

Equity Shareholder's Funds

$19.70

Net Cash Flow

($5.60) ($13.40) ($18.80) n.a

Return On Equity

$70.10

1997

-73.4967 -74.0796 17.01769 n.a

Total Assets Less Current Liabilities

(Loss)/profit on ordinary activities before
interest

$58.70

$69.80

($30.60) ($46.90)

Return on Capital Employed

-52.1295

$99.20 n.a.
$16.90 n.a.

-67.192 17.03629 n.a.

Problems in the situation at this point :

The current ratio is at a healthy 1.8 as per table 2A.4 but the current assets of the
company are the high levels of inventories whose market price may be much lower
than the ones shown in the companys balance sheet.
Also we could from table 2A.3 that LA has suffered from a negative cash flow of (5.6)
million though it has 8.4 million by means of short term deposits and cash (table
2A.2)
In comparison to other retailers in the same retail industry we see that LA has a
negative net profit margin of (11.5) million which is hugely different from others
even though the gross profit margin of LA is among the highest.
Another observed phenomenon was there was negative property in North America by
(5.6) and in UK and Ireland by (3.6) . Despite this we could see that the assets in
Continental Europe increased by 38.0 which indicated that despite losses LA was not
willing to let go of the continental European market.
The record low quotation on the stock exchange from 70.1 million to a sharp 19.7 is
a very good reflection of the bad condition of the company.
Furthermore, table 2.3 shows how the customers lost interest in LA Clothing from
85.9 million to 70 million. This considering it has lost value in North America from
57.0 million to 37.1 million which is almost of 35%. Comparing this value to 61.8
million value in North America in 1995 it is almost 40%
Comparing the ROE of LA along side the competitors we can also see that LA is almost
at the verge of bankruptcy whereas the competitors Next Plc, Ann Taylor Stores, The

Diagnosing the Sources of Poor Performance

Let us start the diagnosis the sources that led to the poor financial performance:
Start off with ROCE = Net margin/Capital Turnover and then break down sales
margin and capital turnover into as many specifics as possible.
Thus in relation to margin we can look at not just the trends but also the gross
margin and the overhead cost ratios:
1999

1998

1997

1996

Operating (Loss)/Profit Before Exceptional Items

($15.20)

($23.60)

$14.80

$9.10

Turnover

$288.30

$344.90

$327.60

$336.60

Gross Profit

$128.40

$130.90

$158.70 n.a.

Operating Margin (Operating Income/Sales) (%)

-5.27

-6.84

Gross Margin (Gross Profit/Sales) (%)

44.54

37.95

48.44 n.a.

Operating (Expenses/Sales) (%)

64.20

48.40

48.40 n.a.

4.52

2.70

If we are to look at the capital turnover we can not only look at the asset turnover
but also more specifically at the capital productivity ratios such as the ones
followed:
1999
Fixed Assets
Sales
Floor Space (in 000's Square foot)

$22.00
$288.30
587.00

1998

1997

$42.20 $49.50
$327.6
$344.90
0
561.50 441.80

1996
$45.20
$336.60
394.10

Inventories

$56.40

$63.20 $93.10 n.a.

Debtors
Fixed Asset Turnover (Sales/Avg. Fixed Assets)
(%)

$19.70

$21.20 $24.40 n.a.

Inventory Turnover (Sales/Avg. Inventory) (%)

Receivables Turnover (Sales/Avg. Debtors) (%)
Sales per avg. sq. feet of retail floor space

8.98

7.52

6.92 n.a.

4.82

4.41

4.01 n.a.

14.10

15.13

13.42 n.a.

0.50

0.69

0.78 n.a.

What we can see that even if Laura Ashleys Gross Margins are high these mainly
reflects the high operating costs of the company . Every other efficiency ratio for Laura
Ashley is actually abysmal.
Although the fixed assets have increased it is mainly because substantial write down
of assets. Furthermore, we can see that the inventory turnover has increased from
4.01 to 4.41, this is mainly due to the sales of the inventories built up during the year
to 1997

Looking at the region wise demographics from Table 2.4 and Table 2.5 we could
s=observe the following as well:
Continental Europe, UK and Ireland show a considerably better performance in
terms of turnover as well as contribution when compared to North America which
has recorded a negative contribution of (7.1) million as compared to 15.0 million
from UK and Ireland and 6.9 from Continental Europe. This despite Ann Iversons
efforts to revitalize the US market.
Taken together the declining sales, the reduction in sales/sq. ft. of retail space
as well as the high inventories point to a week market.
It seems none of the efforts of the repositioning as well as redesigning has
brought any fruitful results at all. As a result of which the erstwhile US furnishings
dept. which had strong sales has fallen down.

Core Competencies of Laura Ash

Basically was a design based firm

Leader in small volume but high quality as was evident in the 1950s.
Now it is a high cost production venture
Interesting thing to note is Laura Ashleys contribution/asset ratio is higher in case
of non-retail ventures rather then retail ventures (as per Table 2.6)

Laura Ashley is in critical danger and needs to generate positive cash flow asap.

So what to do now?

Probable Recommendations (Long Term &

Short Term)
Long term:

Cut down the number of employees as it is overstaffed, despite closure of shops the number of
employees cut down is very less from 3,657 to 3,634 almost 0.6%
A probable option is to concentrate more on Continental Europe and UK and Ireland rather than
focus entirely on North America as a market since the former has been showing a consistent positive
performance.
The critical issue at the moment is to survive, hence:
Shutdown loss making subsidiaries.
Minimize the investments in terms of fixed and current assets.
Even if we are to totally depart from manufacturing we would still have to look at 582
employees who are into manufacturing (Table 2.1)
Short Term:
Keeping the essence of the brand intact need to match up with the New York fashion scenario.
It should definitely move out from own retailing to franchise model of retailing.
Focus on the old loyal customers and keep a long term objective of the gradual gain of new
customers
There is no visible focus on marketing campaigns mentioned and hence strategize to start with
marketing campaigns that will pull up the brand image.

Thank You