Mark OlbrichMark Olbrich; CEO of ZI Private Equity

talks with …

 

 

                                          Pandora Mather-Lees, Director, IORMA LuxuryPandodra Mather-Lees - Director IORMA Luxury

 

 

 

 

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The corporate turnaround – a mysterious, strategic and rigorous process which often results in negative repercussions in order to achieve medium to long term success.  Company regeneration requires an understanding of the factors that underlie corporate failure combined with the profound insight and vision which will ensure results within the necessary timeframes. In a world where disruptive technologies and new business models are impacting businesses more than ever, turnarounds are increasingly complex.

How do the challenges of restructuring a retail organisation, salvaging the good and stripping away the bad, differ in the luxury sector from mainstream retail?  What special skill sets are necessary and what is the secret to approaching a retailer in distress?

I asked one expert, Mark Olbrich, strategist, entrepreneur, polyglot and musician about how he came to work in such an exciting field and to develop the ability to transform retailers into strong organisations able to survive in a tough marketplace.

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PML:  I understand your background is private equity with a focus on retail.  How did you come to set up Olbrich Resource?
MO: My last ‘pre-ORE’ full-time job was with the Innovations Group. I brought the loss making retail arm to breakeven and then it was decided to dispose of it. This brought me back to a more or less M&A sphere with which I had some involvement while at Grand Met. I really liked this world and the opportunities it was creating and so decided to pursue a career within that sphere. Upon starting I realised that my particular skills will benefit me more if I was able to take on projects from several organisations rather than being beholden to one. In addition, for the biggest projects, I would need to hire further professionals so a trading vehicle was needed.

 

PML:  To what extent have you worked with the luxury sector?
MO:
I brushed against the sector on numerous levels. It started with placing various stores of my companies in leading operators such as Harrods, Selfridges, NK, Lane Crawford, then stocking luxury products within our core operations and also to working with some very, very top creators of haute couture in the charities field. In my private equity work I also had a hand in reformatting and re-organising a European luxury ladies’ fashions chain. Indeed I am now involved in a similar project in London.

 

PML:  You appear to be an expert in turning companies around.  How does this differ in the luxury sector from mainstream?
MO:  
Expert is too generous but I certainly try to do well.The mechanics are the same – you need to fix what is underperforming: product, organisation, people, etc. In the luxury sector it is more difficult as brand equity cannot be disturbed and you can’t be seen to do anything that may impact this.  You also come into contact with very entrenched ideas of the founders/owners.

 

PML:  What is the most critical potential success factor you look for when first approaching a company turnaround?
MO: Whatever you do must have a lasting impact. That is, in my view, the real challenge. Patch-up/asset strip is not something I would agree to for the sake of short term cash gain. To have lasting impact – aside from the mechanics of the process (like leaving behind a well structured, self-learning organisation) the absolute key is strengthening emotional attachment to the brand by the broadly defined customer. It is even more important in the luxury sector as without the emotional attachment to a brand a steady and sustainable growth will just not happen. That process can be costly and is never, ever fast. That brings it into some conflict with the private equity modus operandi.

 

PML: How do you see the future of luxury versus mainstream retail developing?
M
O: Luxury sector is and has been extremely resilient. Any player within this may fall but the sector is and always be there and thriving. The key is to find the balance between being a ‘haughty’ yet reachable dream for most consumers. As top operators adopted the model of creating more affordable sub-brands to reach more mainstream markets, they also became vulnerable to some real competition. Some succeeded, others seem to sail too close to the wind. You can pursue sales, but one must not make the brand ‘common’.  I won’t name names, but some failed spectacularly. Some were saved at the last moment – like Burberry – a shining example to the entire sector.

 

PML: You have considerable international experience, particularly in Eastern Europe.  Do you see growth of the luxury sector in Eastern Europe either in terms of foreign brands making an entry or home grown brands or experiential luxury?
MO: Indeed. The luxury sector over there is growing and growing and has a long way to go before the market reaches equilibrium. These markets are not all the same and perhaps ‘sectoring’ them is misleading. Generally the former communist rulers never favoured retail activities as such and so the legacy was in effect a desert. This slowed down the development of local ‘talent’, especially in a more upmarket sub-segment. That said there are some very positive developments. Deni Cler in Poland is one good example, Kazar is another.

 

PML: How do you count strength of ‘emotional attachment’? That is one key set of challenges.
MO:The sure-fire way is to ask you customers. In fashion sector especially your public is very well attuned to what is good about you and where you fail. In fact they decide what is cool. For example in one of the companies we thought the website was horrible, while the visitors and buyers alike declared it one of the coolest. It was the product that was the problem. Then you have to have professional knowledge to realise which way the whole market is moving (for example things like social responsibility and sustainability are massively important among younger shoppers).

 

PML: Is the luxury sector safe in private equity hands?
MO: Very few private equity players have ‘retail experts’ on board to help them – in reality they only think they do. One example is where such an expert told his masters that the maximum achievable margin for their retail sector could never be more than mid 50% – which nearly made them sell at a massive loss. In fact we drove that margin to over 70% at intake with NO price hikes – a difference on ‘galactic’ scale in this game. They survived and are thriving as we speak.

As for turnarounds – some are complicated; some depend on outside circumstances over which no-one has any control. Some are just ridiculously simple to fix and you’re a hero for no good reason. Most are highly doable but illogically those who pay for it are never really too interested in getting the best results and especially solid, long-term foundations.

 

PML:  Can you give me a fascinating fact about private equity and luxury?
MO: I think the fact that by and large private equity has absolutely no clue how to handle luxury fashions is pretty fascinating! Retail in private equity hands is a fascinating ‘animal’ to watch. Generally the ethos is to acquire, develop and dispose of the entity in the fastest possible time. But retail is not an exact science, say such as producing steel alloys. It relies on public support, which has a vast choice of options. It does not yield itself to mathematical modelling too well either.

 

 

Pandora Mather-Lees
Director
IORMA Luxury

August 2014
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