Laura Ashley - Reasons for Downturn
Laura Ashley encountered problems during the 1990s for the following reasons:
The company expanded too far by means of acquisitions, manufacturing investments and retail developments. By acquisition, it purchased totally five companies within 1986 to 1989 ranging from leather goods, knitwear, outdoor clothing specialist with wholesale and retail business, perfumery, and home furnishings. By manufacturing investments, it invested on textile factory, vinyl wallpaper plant, computer-aided design systems, computerised garment-cutting room, computerised handling systems from 1985 to 1987 for over £10.5 millions. By retail developments, its international expansion increased number of retails significantly and there were over 500 outlets worldwide by 1991. These over-expansion activities were stretched in both management and financial terms.
2. Inadequate financial controls and high costs
Due to over-expansion, the business grew beyond the capability of its original systems so that costs spiral out of control. The borrowing levels were high. There was lack of financial controls, for example management consultant fees were unbelievable £1.5 millions. The production costs were also high in UK when comparing with other countries.
3. Unforeseen demand shifts
The nature of the market changed dramatically. The typical buyer grew up. Laura Ashley failed to provide for the more discerning sophisticated 30 plus consumers.
4. Poor management
The management had a false sense of confidence in their abilities. This arose from experiencing a period of success, causing an atmosphere of infallibility and the screening of information. For example, the management neglected some notes of caution when the company was public listed in 1985 such as Laura Ashleyˇ¦s death was a severe loss, the expansion in Europe notably France had not been a success, and the integration of designing, manufacturing and retailing did not warrant a premium store rating.
Laura Ashley was a unified look in the product ranges. However, its clothing and furnishing products and its marketing lacked a single point of view. The range was too broad which diverted the management from focusing on areas of core competences. The restructuring concentrated on cutting costs without considering how to develop the brand, improve the sales and gross margins.
Also, there was a lack of coherent strategy for operation and organization. The attempts to reorganize the group were hindered by the companyˇ¦s insular family culture and a very conservative board. The reorganization in 1988 was managed vertically as profit centres without integration of key functions of warehousing, distribution, stock management and financial control. In 1985, 85 percent of products sold were manufactured in-house. However, by 1988 this was down to 60 percent and falling. This made the philosophy of integration of design, manufacture and retail an unclear and confused. The heavy manufacturing investments were obviously wasted. There were also severe production difficulties in the period causing lost of money. Stock control was weak such as over supplies in the USA.
5. Market decline
By the end of the 1980s, Britainˇ¦s economy was causing increasing concern and business was bracing itself for a difficult start to the 1990s. High interest rates, combined with new restrictions on mortgage interest tax relief, brought a virtual standstill in the housing market. There were serious knock-on effects in the construction industry, and in home furnishing and home improvements markets. Sterling was under almost constant attack on foreign exchanges.
This had serious effects on Laura Ashleyˇ¦s business for several reasons. Firstly, it was in an unfavourable situation for high interest rates as the company had a high borrowing level. Secondly, the new restrictions on mortgage affected the business of home furnishing market. Finally, the company was insensitive to the casualties of the recession especially when its competitor (George Davies) was also in severe problem.
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