and Europe, sales crept on upwards, but margins were looking increas-
ingly sickly. Rising interest rates had frozen the UK housing market,
tipping furnishing sales into a dramatic decline. To add to the woes, deliv-
eries to the shops were becoming more and more erratic.
Financial crisis and aftermath
Gradually and inexorably, the financial situation at Laura Ashley wors-
ened until, in February 1990, the company announced end of year losses of
£4.7 million, on a turnover of £296 million. The announcement came as a
complete shock to the financial institutions of the City of London. The City,
though growing accustomed to increasingly lacklustre forecasts from
Laura Ashley, had nevertheless expected results which were broadly in line
with profit forecasts issued only a month earlier. The share price plum-
meted. Days later, the banks were called in following the breach of a loan
covenant. The value of the company had halved in less than 12 months.
While Laura Ashley (still without a Finance Director) teetered on the verge
of collapse, two rival syndicates representing 11 of its banks argued among
themselves over which of them should be responsible for supplying the
extra money needed to keep the company afloat. Eventually the Bank of
England intervened, and refinancing was agreed, once a way had been
found to reconcile the competing interests of the 25 banks involved. It was
against this backdrop that Andrew Higginson left Guinness Plc to take up
the reins as Finance Director at Laura Ashley. The refinancing was subject
to stringent conditions. The banks demanded a reduction in the company’s
£89 million debt, and improvement in operations. In particular, something
had to be done about its appalling logistics performance. At year end
Laura Ashley had £105 million tied up in stock, yet it still could not deliver
to the shops on time. The North American division had performed partic-
ularly badly, with a third of the 1989 Autumn/Winter clothes collection
arriving in the shops approximately three months late, resulting in imme-
diate mark-downs.
In August 1990, Laura Ashley’s immediate debt problems were allevi-
ated, when a personal request from Bernard Ashley secured a £45 million
cash injection from the Aeon Group, in exchange for an increased stake in
the business. Chief Executive John James stood down a few days later. The
resignation of Peter Revers, President and Chief Executive of the North
American Division – the man who had overseen the US retailing operation
from the opening of its first shop in 1974 – followed soon afterwards. A
new Chief Executive from outside the group would be appointed in due
course. Meanwhile with Mike Smith, head of the manufacturing opera-
tions and the UK retail division, as Acting Chief Executive, attention
turned to matters of sourcing and supply.
Creating and implementing relationship marketing strategies 439