Littlewoods at risk of shrinking to nothing

When James Ross steps down as chairman of Littlewoods in April after six years at the helm of the struggling retailer, he will breathe a huge sigh of relief. The 63-year-old former chairman of Cable & Wireless, who announced at the start of the year that he intended to retire, has watched the family-owned chain, once the pride of Liverpool, go from a relatively stable and recognisable presence on the high street to being one of the most challenged players in the market.

Littlewoods is now facing stiff competition in a difficult market and an uncertain future. There have been reviews, shake-ups, strategic about-turns, re-brandings and even failed attempts to find a buyer. Nothing, it seems, has worked.

Last week's ousting of Barry Gibson, chief executive for four years, was the natural next step but even that was odd in its timing. Financially, the privately owned business reached the pits last year when it posted a first-half loss of £15m. Mr Gibson survived.

"The board didn't want to change chief executives in the middle of a crisis, but decided they wanted fresh management impetus now," says Jim Donovan, corporate services director of Littlewoods.

The company is adamant it is back on the road to recovery, but says it replaced Mr Gibson because different skills are needed to progress. The latest shake-up, however, presents a difficult task for the new chief executive, Alistair McGeorge, who has been with the company for seven years. "Littlewoods is a graveyard of retail managing directors," says Richard Ratner, retail analyst at stockbroker Seymour Pierce. "It has struggled because it has been challenged on all fronts: on price, brand, by a restructuring programme and by the exceptional and increasingly competitive environment," says Sally Bain, analyst at retail research group Verdict.

The company, which has 189 stores throughout the country, was set up by the Moores family of Liverpool nearly 80 years ago. It has been passed down the dynasty, but by the third generation, arguments had set in among the 32 family members. "In the early 1990s there were family rows about different strategies in the business," says a company insider.

When Mr Ross was parachuted in as chairman and chief executive in 1996, it amounted to an admission by the paternalistic Moores that family control had failed. It was now up to professional outside managers to try to revitalise and modernise the firm. Mr Ross's role was split almost a year later when Mr Gibson became chief executive, brought in from airports operator BAA. Mr Gibson developed a strategy designed to turn Littlewoods into a multi-channel retailer and turn its fortunes around.

The rebirth of Littlewoods, however, has not been a happy tale. "It has been the incredible shrinking company for the last five years," says one sector watcher.

"The combination of external market conditions, the rise of value retailers and the extraordinary levels of change that Littlewoods was managing led to some real pressures on the bottom-line performance," admits Mr Donovan.

The Moores were detached from the day-to-day management of the company but that has not turned the tide. The family business ethos, which some analysts say puts charity before profits, is still felt.

Littlewoods' does not just have problems on the high street. The company famously sold its pools operation last year after its market position was eroded by the launch of the National Lottery. But the business was not run efficiently, according to analysts. For example, it employed staff to check pools coupons manually as recently as the mid-1990s to preserve jobs. The Lottery triggered the demise of the pools operation, which was finally sold for £160m. City analysts say this was a fraction of the value it could have fetched before the lottery started.

On the high street, Littlewoods has consistently underperformed its peers and has lost market share. The company was forced to reposition itself as a value retailer last September to compete with increasingly popular discount operators such as Matalan. But the cut in prices and an inability to increase sales significantly pushed the firm into the red.

"Littlewoods' position is extremely difficult. It is at the lower mid-market end, which has been significantly challenged by the discounters, and it has therefore struggled," says Ms Bain at Verdict. The company has even been thwarted in sales talks. Littlewoods is thought to have approached several competitors – including GUS, N Brown, the Manchester-based retailer, and the German catalogue company Otto Versand – about selling all or part of its business. The Littlewoods board has now shelved sell-off plans, at least until the value of the business can be increased. The company did, however, manage to sell some of its best stores to Marks & Spencer – an event some believe marked the start of M&S's troubles.

The overriding opinion is that while Mr Gibson has improved takings at the tills – for the first 20 weeks of the financial year, sales were up 4 per cent on the previous year – he has not delivered. "It is no further forward or clearer on what it was going to do than four years ago," says one analyst.

Despite Mr Gibson's removal, his strategy for turning Littlewoods into a multi-channel retailer with a single brand will still be followed, and the outlook is not entirely bleak. Littlewoods has been revamping its stores – almost 70 per cent have been refurbished in the past two years – and trying to make its products appealing to younger shoppers. It has brought all areas of the business under the single Littlewoods brand and last week launched its first national advertising campaign for all its services, including the shops and home delivery.

But analysts say Littlewoods is yet to find the right formula and needs to be clearer about its brand. "In the clothing market it is one of the most challenged players and has a lot to do to turn round the business," says Ms Bain.

Mr Ratner at Seymour Pierce is more pessimistic. He doubts there will be any Littlewoods stores left on the high street in two years' time. As for Mr Ross, his next task is to find a replacement for himself. The process is advanced. There are four candidates and the favourite is thought to be David Simons, former chief executive of the supermarket chain Somerfield.

Some analysts are surprised that Mr Simons, whose strategy at Somerfield was not adjudged a success, could be charged with turning round Littlewoods.

Fact File: Littlewoods

* May 1996. James Ross appointed chairman and the Moores family separates the ownership of the business from the day-to-day running.

* March 1997. Littlewoods puts its stores up for sale, but four months later abandons the plan.

* September 1997. Barry Gibson appointed chief executive.

* June 2000. Football pools business is sold to Sportech for £160m.

* September 2000. The retailer issues a profits warning and cuts 250 jobs before Schroder Salomon Smith Barney is brought in to conduct a strategic review.

* September 2001. Mr Gibson is ousted and Alistair McGeorge is brought in as chief executive.

* April 2002. Mr Ross due to retire.