It is evident that Laura Ashley Holdings has been experiencing a persistent decline in performance since the 1990s, indicating a severe struggle for survival. Despite multiple CEO changes and the employment of high-paid turnaround executive Ann Iverson, Laura Ashley lags behind its competitors and encounters difficulties in keeping up with economic growth.
Laura Ashley has experienced a decline in various aspects of its business. The company’s sales have decreased between 1995 and 1999, particularly in the North America Region where there was a significant drop of over 40% within five years. Although profits reached their highest point in the mid-90s, they have generally been decreasing since the early 90s. As a result, the company has faced deficits almost every year, especially when it comes to negative cash flow. This decline has resulted in reduced returns for stockholders and the need for additional funding to continue operations.
More capital has been raised through the issuance of stocks. Some of this capital has been used to buy back debt in order to reduce interest expenses and maintain relationships with financial institutions. The remaining capital is being allocated towards store closures and restructuring expenses, although the effectiveness of these measures has not yet been demonstrated. In 1998, stock prices reached their lowest point ever.
The company is facing a shortage of financing, as banks are requiring Laura Ashley to reduce its debt and appear unwilling to provide additional funds, as they expect the cash flow to continue being negative.
MUI currently provides the primary funding for the company, holding a 40% stake in Laura Ashley. However, there is uncertainty regarding MUI’s willingness to invest further due to a previous investment of £43.5 million that resulted in a deficit in 1999.
Iverson’s strategy for turning the company around involves closing small, unprofitable stores and opening larger ones expected to generate more profit. Despite an increase in floor space since the mid-90s, there has been a decrease in the number of stores.
Financial data indicates that over 60% of the company’s assets have been sold since 1989.
The disintegration of operations has commenced with the sale of manufacturing operations alongside a continuing supply agreement. Laura Ashley’s sales data indicates a lack of competitiveness, as it falls towards the lowest end of the industry range, accounting for less than a quarter of Next plc. The company’s margins and turnover ratios are below the industry average, with negative profit margin and ROE. The reasons for this deteriorating performance can be identified using the available data. Factors such as the environment and industry have played a significant role. Laura Ashley has exceeded its previous capabilities. Once solely focused on home decor, the company now seeks to enter garment design, expand its product lines, and rapidly expand internationally, particularly in North America where it lacks market understanding. Laura Ashley’s operations are highly vertically integrated, encompassing design, manufacturing, distribution, and retailing across 13 countries; this results in exorbitantly high overhead costs and minimal exit strategies.
The recent CEOs have attempted to open fewer but larger stores. However, according to David Hoare, this strategy has not been successful mainly due to problems in the supply chain, increased rent costs, and stagnant sales growth. Laura Ashley used to focus on traditional county-style products to attract middle-aged and older women, and this strategy was proven to be successful. In recent times, the company has expanded internationally and tried to attract younger women with the help of new designers.
The case reveals that Laura Ashley has not been successful in attracting new customers and has even lost older customers. They used to follow a full, value-based pricing strategy but shifted towards markdowns at the end of seasons, damaging their reputation as a high-end decor/fashion manufacturer. The organization has been decentralized since its rapid expansion in the early 90’s, with separate mail order catalogs for each sales region. Although the higher-level management team has been restructured recently, it has not proven effective.
For Mr. Cheong, I would recommend the following strategies that would serve the interests of Laura Ashley’s shareholders best. Firstly, there should be a repositioning and refocusing on the traditional country style that was loved by people, especially in the home decor category where Laura Ashley specializes. Secondly, the company needs to consolidate the past and existing customers, specifically targeting middle to older aged women who form their customer base. Additionally, as the world population ages, Laura Ashley can benefit from this demographic shift.
Clothing merchandise should not overshadow the home decor lines, but rather complement them. Laura Ashley should redefine itself as a high-end designer of home decor based in the UK and offer elegant imports to other countries, avoiding the perception of being a retailer of domestic products worldwide. This repositioning strategy entails the following approach:
• Retrenchment: Recognizing that not every product has a substantial global market, particularly traditional British country style decor that might not be deemed fashionable in Asian countries.
Laura Ashley should consider closing most of its smaller retail stores and focusing on becoming exclusively UK-based once again, instead of maintaining numerous smaller retail stores and engaging in franchising activities. To promote the brand, the company should open a few large, upscale showrooms in key locations worldwide such as New York, LA, Tokyo, and Beijing. This strategic move aligns with the recent sale of manufacturing operations and is expected to decrease sales. However, with lower operating costs, it should result in a return to positive income.
For international sales, Laura Ashley can utilize e-commerce and special ordering systems through its showrooms and affiliate partners. The success seen by other companies like Sears Holdings, which now conducts over 10% of its sales online, shows the potential for growth through e-commerce. By developing an e-commerce model that includes user-friendly websites, a wide product selection, reliable customer service,and efficient shipping methods,similar to shopping in a physical store,Laura Ashley can offer customers a comparable experience through online channels.
E-commerce has proven to be cost-effective due to its relatively low costs,ease of maintenance,and potential for reachinga large global customer base.
