Beaverbrooks is famous for being a great company to work for and for being run by a team that brands love working with. But is being Britain’s nicest jeweller great for the company’s bottom line, and does it miss out on commercial opportunities that more aggressive competitors grasp? Rob Corder sat down with chairman Mark Adlestone and chief executive Anna Blackburn to find out.
WatchPro: Beaverbrooks has been continually owned and run by the same families for almost a century. What do the ownership and executive teams look like today?
Mark Addlesone: The ownership is interesting. What we have been doing over the last 20 years is that, as and when opportunities have arisen to buy back shares from shareholders who no longer work in the business, we have taken advantage of that and bought them. So now the shareholding of the company sits pretty much with just myself, my Dad [Gerald Adlestone] and Andrew Brown.
When I am asked about family businesses, I say that they are great, that they bring security to employees. There is a clear structure in terms of who owns what. Those are the positives. The downside of family businesses, if it is not properly managed, is that you can end up with a breadth of shareholders that want different things from the business. One of the things we have managed successfully and proactively to do is to narrow the shareholding. What that does is to allow us to plan long term without needing to discuss decisions with a large number of people.
Family businesses cannot be for the entire family. As you go down the generations — I am third generation in this business — it is not possible to keep the entire family happy. When you talk about a family business, what you really want is a member of the family, or maybe a couple, who are still involved.
WP: How easy has it been to keep the family happy as you have bought back shares?
MA: I think I am a good politician. What do you think Anna?
Anna Blackburn: I would say you are not a good politician at all, but you are a good communicator and you are very straight. You try to find the right solution for everybody.
WP: I assume you have been cutting some pretty big cheques over the years to external share holding family members?
MA: Yes, but the purchasing of all of those shares has been done using our own money.
WP: Is the valuation known outside the family? Are you going to tell me?
MA: Anna knows, but I am not going to share it. There is always a discount to a full valuation of a closed family-owned company compared to a public company because you don’t know what the future holds, and the shares are not tradable. On the other hand, if you hang onto your shareholding and the business is not sold in your lifetime, you never realise the value of those shares. Rather than sitting on shares and being paid modest dividends, why not just get a big lump sum.
AB: You asked about the executive team, which is obviously different. Mark and I work closely together but the exec team is myself as chief executive, and we have only three other executive members. As much as the business has shrunk the shareholding, we have also shrunk the executive team. What we have found, in terms of working practice, collaboration, decision making processes, is that everything is so much more efficient.
We have Simon Smith, who is head of retail, we have Adele Thompson who is head of buying, and Roger Fairhurst, who is head of ecommerce, marketing, store design, everything visual. The four of us work very closely together. Interestingly, three out of the four of us have all come up through stores. Adele is the only one of the four that hasn’t come in from stores, but she has been here with us for 38 years, working her way up through the business on the buying side.
MA: At our conference last year, which brings together our managers, senior managers, and some assistant managers, and the comms team, the average tenure in the room was 17.5 years.
WP: It sounds like you have an unusually low staff turnover.
MA: Certainly at head office and the senior team it is very low. Where it is higher than we would like is with our retail sales consultants, the shop floor workers. The reason for that is that many of our people are working in a business that is open seven days per week. They find that challenging. At head office, we work 9-5, Monday to Friday. That is fine. But in the stores it is more challenging.
We do analyse why people leave us, and it is a combination of them not meeting our standards, the fit not being right despite our best efforts, and their personal circumstances changing.
WatchPro: When you have a senior team with so much longevity, does that not create challenges of its own with people below that level in terms of their careers lacking momentum and places to go?
AB: I am a good person to answer that because never in my wildest dreams did I imagine I would get to where I am. What I would say with our senior management team is that, if people’s jobs are enriching, if they have personal development within their roles, if they are part of a team that can drive the strategy of the business and be very much involved, and the rewards reflect that, then for us it is not necessarily about that next pay grade or that next step on the ladder.
WP: In some ways, the Beaverbrooks story has been told most frequently in the press for its touchy-feely qualities because you have featured in the Sunday Times Best Companies to Work For every year for over a decade. How does your obvious success by that yardstick affect the hard-nosed business performance in terms of numbers?
AB: We are not hard-nosed but we are ambitious, we are driven, we do believe we have to be the best at what we do and deliver to the bottom line. Over the past three and a half years we have looked more closely at our costs. We have interesting debates about costs because it is important in terms of driving value. It is not about cutting back costs for the sake of it, but it is about investing wisely. When I took over, we had struggled with profitability for a number of years. It was well below where we thought we could be. We have always made a profit, but the three years, 2009-2012, those were modest years for us in terms of profit.
Since then, we have just had the three most profitable years in our history. There have been changes in the economy, but the changes in working practice, the change in focus, the simplification of our strategy has made a massive difference. For me, on the back of three years of much higher profits, I see that link between being a great employer, doing the right thing, and now proving that doing all of that does feed through to business success.
MA: I just want to talk about the touchy-feely thing as well. I think we are a company that cares. That means we talk to people. We have open and honest conversations. We care enough about people to peel the layers of the onion off a little and support them. That is for our benefit, as well as theirs.
WP: I didn’t mean touchy-feely in a pejorative sense. I was actually interested in the cause and effect; of how being a great employer affects the top and bottom line.
MA: We have a guy who joined us from JD Sports. He said that his perception of Beaverbrooks before he joined was exactly as you said: a lovely company to work for, but not very commercial.
AB: Now he is here, he says that he has never been held so accountable. We are very commercial, we are very on the numbers, we are very on the processes. We are agile and quick to make decisions, which a lot of businesses our size do not achieve.
WP: You spoke about driving value. Do you think driving value is the same as driving productivity and measuring that productivity across every employee, every square inch of real estate, every brand you take on, every decision that you make?
MA: We look at every store in terms of the profit that it delivers for us. Each store will thrive, survive or not survive on the basis of its profitability. At the moment, if there are any loss-making stores, it is very difficult to get rid of them until they reach the end of their lease. In the old days, you could actually make a premium selling leases on, but nowadays you can’t do that.
In the main, there are only a very small number of stores that are not profitable for us. We are very transparent with our managers in stores. They know the profitability. They know where they sit. They know when the lease is coming to an end. They know what they need to do for that store to continue trading.
WP: So the manager of each store is effectively an entrepreneur running a small business?
MA: Yes, although there are certain fixed costs they cannot affect, such as rent and service charges that we look after. But they have a great deal of control over the elements of the business that they can affect.
AB: That is something that started during my tenure as head of retail. One of the things I realised, even when I was an area manager, was that people generally are quite good at upward delegation. More and more issues were being passed upwards to regionals, rather than being dealt with in stores. I wanted to reverse that and we have achieved that by making the role of our regional managers more strategic; more about the business; more commercial.
I do a lot of focus groups with managers and when they are asked how they feel about the level of accountability they have, they all say they love the responsibility. They own it, they live it, they feel in control of their business.
WP: How far down the corporate pyramid do you set targets for people, and presumably bonuses, based on profit and not just on sales?
AB: We have sales bonuses for our sales teams, and we have just introduced profit bonuses for our store management, which includes store managers, assistant managers and supervisors. Those profit bonuses are not based on the profit of individual stores, but on the profit of the whole company. That is because the profit of individual stores can be affected by things that they have no control of.
WP: You could give them a fixed allocation of the overhead of the whole company, and then set a profit target for an individual store.
AB: You are right, but we want our managers to see that, while they are both running their own stores, they are also part of a bigger business. For example, we have a very healthy web business that brings people into their stores.
MA: Another example: if we phoned up a shop and asked them to send a particular watch that is sitting in their window so that it can be sold to a customer online or in a different store, we would not want them to feel that helping the other store or the web business was going to damage their chances of hitting a profit target. Previously, we wanted them to contribute to the profit of the company, but we were not putting our money where our mouth was. Now we are. Now we are telling them that if the company is more profitable, they will benefit.
Mainly, the store managers are incentivised to drive turnover, which is the purest way to measure their performance, we feel it is easier to keep people focused on bringing in the money.
WP: How is the current market affecting the way Beaverbrooks thinks about the coming year or two? In particular, the value end of the watch and jewellery market being so tough right now.
MA: Yes, jewellery is tough. But, having said that, we have done well on diamonds, we have done well on wedding rings. Where we have struggled is on gold jewellery, which is our historic profit centre. Bridal is strong but gold jewellery is challenging. Silver brands have also been a struggle, but our own generic Beaverbrooks silver jewellery has done OK.
Where we have seen the growth is in Swiss watches, which will not be a surprise to you. We have invested more in Swiss watch brands across the estate. The challenge for us from a business perspective is that, while that can generate turnover, the profit margins that we generate are lower than we do from jewellery. That is our challenge.
That said, without the Swiss watch business, our turnover would have been affected. So, we are happy that in terms of turnover we hit £119 million last year, which was a good effort.
AB: I think that we have seen a reduction in the fashion brands in the jewellery category, and also in the watches. There is a large decline in the fashion watches.
WP: That seems to me to be the big challenge for a company like yours. Aurum Holdings has a tiered approach with different retail brands for different categories ranging from Mappin & Webb and Watches of Switzerland at the top end down to Watchshop.co.uk at the value end. With Beaverbrooks, you are trying to manage your different categories and price points all under one name.
MA: What we do is the same as Goldsmiths and Ernest Jones, but I agree it is different to Watches of Switzerland and Mappin & Webb.
AB: Beaverbrooks is different in different towns. We offer a different portfolio of products. We look different and we are different in East Kilbride, Meadowhall and Trafford Centre. There is a definite DNA of the brand that runs throughout but we are different if you compare a big shopping centre location to a smaller high street. That is what works for us and our customer.
WP: Out of your 69 stores, how many are in shopping centres today, and how has that changed over the recent past?
MA: The number of pure high street stores is probably down to about 10-12. It is a small number now.
WP: Footfall is down even in shopping centres right now.
MA: It is, but I would differentiate between shopping centres in towns and large regional shopping centres like Trafford Centre, Meadowhall, Lakeside, Bluewater.
AB: You asked earlier about the profitability of individual stores. One of the things that we do far more of than we used to is looking very much at the statistics and the trends. So, while we do see a drop in footfall, we are also witnessing a rise in transaction values. It is really about working with the shoppers we get.
WP: If you look at the key trends of the past 12 months, none is greater than the rise in sales for luxury Swiss watches; in particular the rise in the average transaction value, which is going through the roof. Is that not a market you have to do more in?
MA: Again, it depends on the location. In smaller towns, it would be OK for us not to have the key Swiss brands. We would prefer to have them, but we can still be profitable and drive our great diamond business and bridal business in those areas.
WP: Looking at trends within trends, we can see the Rolex and Patek Philippe have become more and more successful for their UK retailers. What is your situation with these brands?
MA: We unfortunately haven’t had the opportunity to sell them. We have not been granted the opportunity to sell them.
AB: The brands that we do have are performing very well. We do have Omega in a number of stores, Breitling, TAG Heuer is a real key one for our market. It is doing very well, and we have done very well with it. We would love to have these brands in all doors, but that doesn’t always happen.
WP: If I look at the size of these brands in the UK, and their market share, you are looking at Rolex being around three times larger in the UK than all Swatch Group watch brands combined. Patek is close to double the turnover of all of Swatch Group. Swatch Group and LVMH watch sales are roughly the same in the UK. Even the biggest brands within Swatch Group and LVMH, compared to Rolex and Patek Philippe, are not that big in the UK.
MA: Absolutely, we are missing out. But my read on this is that, yes, we would love to have those brands, of course we would. But look at our performance without them. Imagine how good we’d have been with them. We have done a bloody good job.
WP: I wondered whether you had made a more conscious choice not to work with Patek Philippe and Rolex because, although turnover would almost certainly go up, the margins are not as good as with other brands.
MA: I would say that, of those two brands, the one that would be sympathetic and empathetic to Beaverbrooks would be Rolex. As a retailer, we would be the equal of Goldsmiths and Fraser Hart in our ability to sell those brands. As far as Patek Philippe is concerned, I do think that is a different market. It is a wonderful brand, but I sense it is a very different market again, even from Rolex.
AB: Rolex we would do very well with. The way that our stores sell Swiss watches leads me to believe we would do extremely well with Rolex. It is definitely more our marketplace. When you look at how we perform with Breitling and Omega, Rolex would be more our marketplace.
Rolex has a reputation for being very loyal to the base that they have. My understanding is that when you enter into a relationship with Rolex, you are very aware of the expectations and the rules. You know that if you break those rules and expectations, you know what the consequences will be.
At Beaverbrooks, we do play by the rules. We are very straight and ethical, and that is why that clarity of relationship would work with us.
MA: Historically, I have tried to develop a relationship with Rolex. The previous managing director, Mr Maingot, closed me down, even though I had many attempts to engage in conversation. We have a totally different relationship with Richard De Leyser, who is delightful.
AB: We are also a Tudor stockist, so we do work with Sven [Olsen] and his team at Tudor. I think historically, we are seen on one hand as warm and woolly, and on the other hand we are seen as one of the big bad multiples. But we see ourselves as a family business with 69 stores.
WP: Beaverbrooks is under-represented in central London, and it is no doubt difficult to persuade the brands you would need to get into the prime locations, but I wonder whether they would be more interested if you offered to open monobrand boutiques on their behalf?
MA: We are not just under-represented in central London. We are not there at all. For us to be successful there we would have to open with watch brands and they are all pretty much taken. We would not do much on the jewellery side, we don’t think.
Then again, when Watches of Switzerland created 155 Regent Street, nobody said there was a desire for it or a need for it. But they came with a proposition, and created from nothing a desire. Then they did Oxford Street and then they did Knightsbridge. They went out and created a market. The advantage though is that they are Aurum Holdings. They have got the Mappin & Webb and Goldsmiths connections, so they already have the relationships with the brands that you need in central London.
WP: Do you ever look at airports? I have never been given figures on sales for Watches of Switzerland boutiques at Heathrow, but I assume it is a significant part of Aurum’s business.
MA: I’m sure that’s true, but I would question the level of profit of those locations. I’m sure the turnover is immense. We have looked at airport positions, and we know the sort of commissions they like to take; they are significant and don’t leave an awful lot for the retailer. So, great for turnover, not great for profit.
WP: That focus on profitability rather than turnover appears to inform every decision you make.
AB: As the saying goes: turnover is vanity, profit is sanity.
WP: Even so, if you look at the hot spots for watch sales in the UK over the past year, they are at the luxury end of the market where we know Rolex and Patek Philippe are the strongest two brands, and they are in prime central London. Beaverbrooks is notably absent from both.
MA: I think that is an absolutely valid observation. It is just something that we have not managed to get into.
AB: There is also a historic element to this, because we are a northern-based company. We do now have representation in the south, just not in central London. We are in Westfield (East and West London). We have two stores opening in Guildford and Bracknell this year.
WP: Looking at your recent financial results, there was no growth in turnover from 2015 to 2016, which is the same year that Wempe on Bond street increased sales by 37%. Aurum Holdings sales were up 27%. The Watch Gallery sales were up 34%. How would you describe 2016? Is matching 2015 a good result?
MA: I think in our market it is.
AB: It is definitely a good result in our market because we have seen such a decline in fashion, which hit us. We were able to plug that gap. If you strip out central London, where we are not represented, then we know that in the places that we operate, if we look at how much we take per door, we know that we do well. It is not a like-for-like comparison when you look at Aurum.
WP: I understand that, but you made some strategic decisions five years ago, and Aurum Holdings made different strategic decisions.
MA: You are absolutely right. Aurum Holdings made the decision to open 155 Regent Street; we missed that opportunity, if it was ever there for us. But, bear in mind we did not deal with those watch brands that are needed in a location like that and are critical to the success of the concept.
I guess at the end of the day, we do see ourselves as the champions of the high street. We are middle- to upper-middle market.
WP: What is the focus moving forward?
MA: We are very comfortable with the market position that we have. While one looks at the success in central London with a certain amount of wistfulness, we are philosophical enough to accept that it is what it is, and that is just not our market. Also, things are cyclical. We have a great position in the UK, we have a great name; strategically we are well-placed. Jewellery will come back; gold jewellery will come back and we will be very well placed at that stage, we believe.
We are not looking to create the Beaverbrooks equivalent of a Watches of Switzerland. Equally, we are not looking to create an H.Samuel equivalent.
WP: You will not create different retail brands for different market tiers like Aurum Holdings did with Boutique.Goldsmiths?
WP: Online is a very distinct and different channel to your stores. How is that working for you?
AB: Online is very strong for us. It has grown significantly over the past few years and what we do have is a very good joined up strategy. For a long time we were number one for Omega online. We represent the brands very strongly.
MA: Our strategy going forward is to continue to open stores where opportunities arise. We have two openings this year in Bracknell and Guildford. Historically, a lot of our growth, up until 2008, came from the explosion of shopping centre developments. After 2008 that slowed down significantly and it has reduced the number of opportunities for us to open new stores. But we are ambitious, and we are happy to look at opportunities to buy or partner with existing businesses as well — including independents — that would be interesting to us.
We will see. This year we are fully satisfied, we have plenty on our plates. But from 2018 onwards, we have an open book. There is nothing specific that we have committed to.
AB: It is important to have a strategy, but it is also important to be flexible and agile. One of the things that Mark and I do is to look at different opportunities. [Fashion retailer] Next is a good example, where we have a very strong partnership online selling Beaverbrooks-branded jewellery on the Next website. That has worked really well for us.
WP: That effectively makes you a jewellery wholesaler. Why not do the same with Asos, with department stores, with mail order like Littlewoods?
AB: We have looked at a number of other ways to do it, but the fit hasn’t been right. The fit has to be right.
WP: What did you mean when you said that you were open to opportunities to buy or partner with other retailers? Buying independents that have the watch brands you want could be a way of also getting those brands?
WP: Are there any deals of that nature already in discussion or negotiation?
MA: We should share with you, since you asked that question, that in September 2016 we entered into a partnership with Whittles in Preston. Whittles is a county jeweller that stocks Rolex, Omega, Breitling, TAG Heuer, Longines and Tissot along with bridal and other jewellery. It is run by Joanna Rhodes Valentine, who is third generation of the family. We saw an opportunity to have a presence in Preston, where we do not have a Beaverbrooks, so we thought, let’s see if we can do something we have not done before, and that is how we ended up in partnership with Whittles. And it is working beautifully. It works because Joanna’s values and our values are so aligned.
WP: Can you give me more details on the nature an structure of the partnership?
MA: I would rather not, because it is sensitive.
AB: Joanna runs the business and we are shareholders. It is very much still Whittles, it is not a Beaverbrooks. We are investors in that business.