One of the arguments for studying history is that it might help one avoid the mistakes of the past. It might, but in practice it never seems to and each generation seems to have to learn the same lessons for itself.

Nowhere is this more obvious than in corporate activity. It’s easy to understand the motivation.

“I’ve reached the top and had to stop. And that’s what’s worrying me”
– Disney – Jungle Book

So the obvious way forward is to buy another business. And that is what many successful retailers decide to do. But all too often it ends in tears. The history of the last 40 years is littered with attempts to build retail conglomerates and then take them apart again.

The argument in favour sounds compelling. Surely a retailer who has been successful in one sector will be able to use his/her (though it always seems to be men that lead these processes) expertise in another sector. The cash flow from the mature successful business can then be used to support the new ones. And, finally, a conglomerate will have a fund of highly successful retailers who can move in and sort out problems in one with problems. Add to that is the potential for asset stripping, especially when the acquired businesses have a strong freehold portfolio. A conglomerate isn’t likely to perform well in all divisions at the same time, but overall it should be a safer investment in the longer term.

Fine in theory, perhaps even compelling. But it never seems to work in practice – Kingfisher, Metro, Sears, PPR, Storehouse to name just a tiny number of examples. Each of those failed for slightly different reasons, but it usually came down to the problem of trying to sort out several troubled businesses, especially when it was the core which had hit problems (eg Sainsburys in the US/DIY days).

At the moment there are two main examples of conglomerates in the building up phase – Sports Direct and Edinburgh Woollen Mill. Sainsbury’s plus Argos and JD plus Blacks could also be cited.

EWM and Sports Direct differ in that the latter is a quoted company with a very high profile CEO (Mike Ashley) while the former is private and with its CEO, Philp Day, makes no attempt to court publicity.

Sports Direct

Sports Direct is one of the most successful businesses of the last 25 years. Mike Ashley spotted a gap in the market, took advantage of low cost sourcing opportunities (cf Primark) and has built up a substantial chain. The cash flow from the sports business has been used to justify the purchase of House of Fraser (upmarket department stores), Evans Cycles and now Game Digital. And there are reports that the final results for 2018/19 have been delayed and that is always seen as bad news. It’s worth adding that Sports Direct and Mike Ashley in particular are things the media Love to Hate. Any negative press for either needs to be treated with some caution.

But even if the problems with the final figures are resolved satisfactorily the underlying concern remains that Sports Direct does not have the strength in depth of management to be able to manage this disparate collection of businesses. No retailer can be treated as a cash cow and the Sports Direct chain cannot be allowed to coast while the acquisitions are sorted out.


EWM and Philip Day do not get the same media attention as Sports Direct. Being private the business is under no obligation to report regular updates of its progress and it has 10 months after its year end before it has to file accounts at Companies House.

But the range of different businesses and brands that it has bought is breathtaking – Edinburgh Woollen Mill itself, Jaeger, Austin Reed, Ponden Home, Jane Norman, Peacocks and there are others that have been bought and then subsumed into existing businesses (eg Rosebys). Now it has agreed to buy Bonmarché, a downmarket, older womenswear chain, which, again, has little overlap with any of the existing businesses. The company is experimenting with a department store format, Days, which carries all the group brands.

However, unlike Sports Direct, EWM has generally concentrated on smaller acquisitions. With Jaeger and Austin Reed it only bought the brands. The Jane Norman acquisition did not work and after a period of trading online it now exists only as a department within Peacocks. The point is that Jane Norman could largely fail as an acquisition without threatening the survival of the group.

The latest accounts, for 78 weeks to August 2018, are almost impossible to analyse thanks to all the acquisitions and the change in year end. But at operating margin 10.3% for the period compared with 14.7% in the previous year when the extra weeks in 2017/18 do not include an extra Christmas, still looks very impressive.

Where next?

It is hard to be optimistic for either of these businesses. The range of acquisitions is too wide, too disparate. The existing management must surely be too stretched. As we said, the negative press for Sports Direct needs to be treated with some caution, but it is unlikely that it can be entirely discounted.

Our concerns for both are longer term. In collecting such a wide range of businesses in one group, can any of them really get the attention they need. No business can be left to run itself. We would argue that the recent underperformance at Sainsbury’s can be largely put down to the diversion of management time to dealing with Argos and the, ultimately failed, attempt to buy Asda.

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