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Online Retail
Professionalising a rapidly growing business

Background

The client was an online retailer of domestic lighting and ancillary products. It was privately owned. The majority shareholder had founded the company some five years earlier. The company had rocketed in size during that five year period.

The business traded through market places (Amazon and Ebay) and it’s own websites. It also had a wholesaling business selling commercial lighting products. At the time of the start of the assignment total turnover was circa £10m and the business split was 85% retail and 15% wholesale.

The Brief

The principal shareholder/Managing Director had done a brilliant job in establishing the business and growing it to become a £10m business within a 5 year timeframe. He had reached the stage where he was approaching exhaustion and he wanted to look at the available options for the future of the business.

The initial brief was to carry out a strategic review of all of the available options for the business and for the shareholders. The brief subsequently changed as described in the next section.

Assignment

The strategic review was carried out and the merits and pitfalls of all of the available options were considered. The MD was unsure which option to take for a period of time so my brief during this time was to start to build reporting systems for the business. There had been no Finance Director until this point and available information was very limited.

During this time, it became clear that the preferred option was not to sell the business but to continue to grow organically without any third party investment. However, an essential part of the preferred strategy was to re-engineer the day job of the MD and to set the business infrastructure up to run like a business of much greater scale.

My brief therefore changed from acting as a consultant playing devil’s advocate and guiding them on the strategy going forward into (1) acting as the First Finance Director and developing all things financial and (2) acting at the Business Partner to the MD and planning and implementing a strategy to establish the business as a professionally run organisation that was not totally reliant upon the efforts of the MD.

Over the next couple of years, the following activities took place.

Management Accounts were refined and made more appropriate for an online retailer and B2B distributor. Detailed monthly commentaries on every part of the business were implemented.
Financial, Commercial and Operational KPIs were introduced and used as benchmark targeting and a key part of newly introduced weekly review meetings
Non core and compliance activities were outsourced
Sales reporting was developed to show daily, weekly, monthly, YTD sales by sales channel (15 channels) comparing with budget and compared with last year’s comparatives
Margins were reported by channel and exception reports were produced alerting managers to low margin transactions
The target future senior team structure was defined and the recruitment of the required heads was completed including a Marketing (E Commerce) director, an Operations Director and a Purchasing Director (succession planning for a shareholder who was beginning to plan his retirement)
A Non-Executive Chairman was appointed to ensure that Board Meetings and Corporate Governance was operated to PLC standards
Team building and business awareness training started for the Senior Team so that everybody was intimately familiar with what we were trying to achieve
HR activities were developed including personal development training, formal review systems, career planning etc
The next layer of Management was brought together as a team for the first time. The line managers were coached individually and as a team. Management Information was shared with them for the first time
Communications programmes were developed to try and involve every member of staff in the business
As a reaction to the speed of growth of the company, warehousing operations first moved to 24/5 working then 24/7 working. This involved deep planning of what the shift patterns would look like and consultation to move to that kind of working
The business outgrew it’s current digital marketing capabilities and a branding and Digital First strategy was implemented which led to new website platforms being developed
The business moved to a new cloud-based ERP system (Netsuite) which was latest generation and capable of being tailored to the needs of the business as it grew
The company introduced a risk register which outlined all areas of significant risk and what the company’s plan was to mitigate each of those risks
Supply chain activities were critically reviewed and re-engineered. The team in China was expanded and pre-shipping quality inspection routines were beefed up. Purchase order pipelines and stock level forecasting systems were enhanced and became very detailed to ensure that overall spend levels were tightly controlled
Marketing activities and spend were ramped up significantly as the company drove up the percentage of sales generated from the companies own websites
The company expanded it’s retail operations internationally initially into Germany, France, Spain and Italy
The company reviewed it’s wholesaling operations and decided to revert back into product sectors in which they were truly market leading
The company had plans to further expand retail activities into the USA, China and Australasia. Based on the future state being a global business, the company built up it’s infrastructure accordingly so (a) the company transferred banking activities to HSBC which had roots in the Far East and a branch structure in Europe and the USA (b) moved to global insurance brokers that covered USA, China, Europe and Australasia and (c) moved to commercial solicitors with international operations for the same reason
The company further enhanced it’s Forex (Foreign Exchange) policy to try and protect the company’s margin as a result of the falling exchange rates of the USD. The company became a multiple currency reporting entity (sterling, euros and USD)
The balance sheet (and particularly cash reserves) were built up to provide some insulation against any future crises arising out of the Brexit transition

Conclusion

The journey that the company went through over a four year period was very testing and massively rewarding. The business grew from a £10m turnover business to circa £35m turnover business. Headcount grew from 35 to 105.

During that period, all audits were completed smoothly and without any adjustments. The auditors described the audits as ‘’squeeky clean’.

The bottom line was very acceptable (8% return on sales) despite the very low exchange rates on the USD. The Balance Sheet was strong. Cash reserves were deep. Stock availability was good.

The business now had very solid foundations. The day job of the Managing Director had changed out of all recognition. He now focused on looking forward, strategy and benchmarking against market leaders who were recognised as best in class. He brought their ways of working back to his business. The day to day activities within the business were owned and controlled by his team.

The director / minority shareholder had commenced backing out of the business and his successor already had a strong grip on supply chain activities.

The business now had a management team, processed and reporting systems that were fit for a business twice it’s size.

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What our clients say

David Gutfreund Managing Director, LSE Retail Group

“ Les, as first Finance Director of the business, developed financial, commercial and operational reporting systems and KPIs and he professionalised the Finance team and our relationships with banks and third party advisors.

The company has been future-proofed and it’s infrastructure is now sufficient to grow the business to £50m sales from the current £30m level.”

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