Laura Ashley Holdings: The Battle for Survival 1. Assess the company’s recent performance. How serious is the company’s present predicament? Laura Ashley’s business performance has been on the decline since the early 1990’s. Although with the numerous changes of CEO’s, including the highly paid turnaround executive Ann Iverson, Laura Ashley is still left far behind the competitors and unable to keep up with the growth of economy.
Laura Ashley’s decline of business performance can be observed from the following: •Financials: sales have declined from 1995 to 1999, with the North America Region being the most noticeable: over 40% of decrease in five years. Profits have peaked near the mid-90 but decreased overall since the early 90’s. Deficits occurred nearly every year, especially negative cash flow, leaving decreased return for the stockholders and requiring even more to fund continuing operations.
More capital has been raised by the issuance of stocks, partially used to buy back debt to relief interest expenses and retain relationships with financial institutions; rest goes toward the closure of stores and expenses of restructure, which has yet been proven effective. Stock prices have fallen to an all time low in 1998. •Shortage of financing: banks have demanded Laura Ashley to decrease its debt and seem to be reluctant in lending more funds, just to see it getting drained by the continuing negative cash flows.
Company currently only has one major source of funding, MUI, which owns 40% of Laura Ashley’s stocks, and its willingness to invest further is questionable since ? 43. 5 million of investment only resulted in a deficit in 1999. •Expansion vs. retrenchment: one of Iverson’s turnaround strategies is to rid the small, unprofitable stores, and open new, larger stores that are supposedly more potentially profitable. Floor space has increased since the mid-90 but number of stores has decreased. According to the financial data, the company has sold more than 60% of its assets since 1989.
Disintegrating of operations has begun as manufacturing operations have been sold with a continuing supply agreement. •Competitiveness: Laura Ashley’s sales data is toward the very bottom of industry range, less than a quarter of Next plc. The margins and turnover ratios are lower than the industry average, with profit margin and ROE in the negatives. 2. Using the data available, what reasons for the deteriorating performance can you identify? The following factors resulted in the decreased performance assessed above: Environment/industry: Laura Ashley has truly outgrown itself. The once successful UK Company that only specialized in home decor is now trying to tap in the garment design, expend every line of selection, and rapidly grow internationally, especially in North America where the company does not have a good understanding of the market place. Laura Ashley’s operations is highly vertically integrated, covering design, manufacturing, distribution and retailing in 13 countries, making the overhead costs extremely high and leaving almost no exit strategy.
The recent CEO’s have tried fewer but larger stores, but as noted by David Hoare, still doesn’t seem to be successful, mainly due to inadequate supply chain, raising costs of rents and halted sales growth. •Positioning: Laura Ashley used thrive upon the traditional, county style to target middle to older aged women, and the strategy has been proven successful. Recently, with the international expansions, the new designers tried to capture the market of younger women.
However, according to the case, it has failed to consolidate any significant, new customers, while losing older customers. Laura Ashley used to use purely full, value-based pricing strategy, but decided to go with more markdowns at the end of the seasons, destroying the image of the company as a high-end decor/fashion manufacturer. •Decentralized organization: ever since the rapid expansion in the early 90’s, Laura Ashley’s management seem to be very decentralized, even with separate mail order catalogs for each sales region. Recently the higher evel management team has been restructured, but still doesn’t seem to be effective. 3. What strategy recommendations would you offer to Mr. Cheong that would best serve the interests of Laura Ashley’s shareholders? •Reposition and refocus: the designing focus should roll back to the traditional country style that people loved, mainly home decor, which is the specialty of Laura Ashley. The company needs to consolidate the past and existing customers: middle to older aged women, and will benefit from the aging world population.
Clothing merchandise should be supporting, not overwhelming the home decor lines. Laura Ashley should also reposition itself as the UK based, high-end home decor designer, and classy imports to other countries, not domesticated products with retail stores all around the world. This reposition leads to the following: •Retrenchment: not every product has a large enough audience to support the entire world, especially traditional British country style decor, which may not be perceived as stylish in Asian countries.
Instead of the gigantic overhead incurred by opening retail stores, Laura Ashley should close down most of the smaller retail stores and stop franchising activities, retrenching to become once again UK-exclusive, and open a few high-end, large showrooms in key locations around the world, such as New York, LA, Tokyo, and Beijing to promote the brand. This strategy coincides with the recent sale of manufacturing operations since sales will decrease, but as operating costs decrease, income should once again become positive. International sales should be handled by using e-commerce and special ordering from the showrooms and affiliates. E-commerce: with Amazon. com becoming profitable and the huge success of eBay, many companies started to reposition their focus on e-commerce, such as Sears Holdings, who exited the mail ordering business in the late 90’s and now does over 10% of sales online. Laura Ashley needs to develop an e-commerce model with websites, wide selections, solid customer service and a convenient transportation method to let customers enjoy the same experience as shopping at a retail store. E-commerce has been proven cost-effective as it is relatively low cost, easy maintenance, and has an unlimited target audience of the whole world.