Concerns in the City as Ratners over-extend?
Towards the end of 1988^10 concern was expressed in the City that the
Group was being too ambitious in its latest acquisition.
Undeterred, Ratners’ acquisition strategy continued unabated. From
Next they acquired 130 Zales stores (consolidating these under the Ernest
Jones name); 73 Collingwood and J. Weir stores; and 235 Salisbury fashion
accessory stores that the group had previously stated it didn’t want.^11
Fortunately the yearly results were excellent: turnover up 76 per cent,
profits up 60 per cent, respectively 20 and 40 times levels in 1983.
In October 1989 Weisfields in the US was purchased, which made a total
of 470 outlets in the US and increased geographical coverage. With the US
now 30 per cent of operating profits, a short-term target of 1500 US stores
was mentioned. By August 1990 US sales had grown to $402 million, with
three distinct merchandising divisions but with integrated EPOS and
delivery systems. Heavy advertising, promotion and discounting contin-
ued improving volumes and brought in profits growth again of about 50
per cent in April, a growth achievement surpassing all other retailers; but
their acquisitions-oriented finance director was replaced with Mr O’Brien,
signalling a shift towards more detailed financial controls. The City
remained equivocal:^12 ‘the phenomenal success at taking jewellery down-
market might eventually backfire’, but this ‘reckoned without the growth
prospects in the US or Ratners’ unique position in the UK market, with the
20% growth in the company the share price would take care of itself’, and
the market had it in for Ratners, with the shares receiving a lowly rating
from the City at 227p.
This was shortly followed by an agreed bid for Kays, a 500-store chain in
the US. The acquisition would make the company second only to Zales,
who had 1700 stores in the US. Although there was geographical logic in
the acquisition, substantial investment and integrations was required and
a number of analysts were concerned as to the financial wisdom of the
deal. Kays had been rumoured^13 to be heading for voluntary bankruptcy
and a Chapter 11 filing to stave off creditors in the face of heavy losses.
Ratners claimed that Kays’ previous performance was irrelevant, all they
were buying was real estate and staff. In the event, much of the stock
acquired with Kays was not up to scratch and had to be shifted through
alternative outlets. Ratners also misjudged the quality of the staff; by
September 1991 fully 25 per cent of the managers had been replaced. A bid
too far perhaps?
The results in January 1991 showed a slowdown in performance. Despite
improved stock control, and just-in-time delivery systems which had
allowed stock to remain at constant levels whilst turnover grew to over £1
billion, profit had shrunk, for the first time in 10 years. Generally the retail
sector was not looking very good, with the suspicion that things would get
The referral and influence market domains 259