coming down 15 per cent, cost increases of 10 per cent seemingly could not
be passed on and the share price continued downwards. In the US the
group’s preference stock was downgraded by Moody’s Investors Service,
adding $2 million to the annual interest bill and making further debt auc-
tions more expensive. Shares fell further to 83p as the market anticipated
poor results and a cut in the dividend. One analyst commented:^19
Gerald Ratner has, in the past two to three years, thrown a lot of money at
the Christmas sales and the expectation is that this year he will throw any-
thing he has at the sales. The question is whether the returns justify the
spending.Although the New Year brought a rally for some retail shares, Ratners con-
tinued to suffer heavy selling pressure, falling to 27p by 2 January 1992,
and a further 5p in the next two days, after 5.3 million shares were traded
in a day. Ratners would face breaching banking covenants, believed to
require interest cover of at least 2×, and having to pass on the preference
dividend. The group’s own principal bankers, Barclays and Midland,
along with some analysts and newspapers, played down any risk of any
actual financial meltdown, allowing some slight share rally; but all per-
ceived the need for radical restructuring. One banker commented:^20
Ratners may break a banking covenant. But that in itself is no reason to
panic. What we have to assess is how much cash the business is generating
and is capable of generating. Only then will we need to discuss whether its
debt has to be restructured.There has to be a serious possibility that Gerald
Ratner will give up either his role of chairman or chief executive.Mr Fuller, chairman of the British Jewellery Association, reportedly high-
lighted the ill feelings of suppliers following Ratners’ aggressive buying
policies, and unfirmed-up orders resulted in infuriating stock returns: ‘He
got away with it once, but a lot of the bigger companies got together and
said they were not prepared to deal with him again on that basis, so he had
to change.’ Gerald was respected for what he had achieved but not partic-
ularly liked.
His City credibility was likewise waning. Finally on 11 January 1992,
after further downgradings from Moody’s and the American credit rating
agency Standard & Poors, Gerald Ratner abdicated his role as Chairman,
in favour of the 61-year-old, tough-speaking Scot Mr James McAdam, the
former Deputy Chairman of Coats Viyella and Chairman of two major
British clothing associations. An unusually subdued Mr Ratner was quoted
as saying:^21
I am very happy about the decision. I shall continue to have responsibility for
the running of the business on a day-to-day basis as any chief executive would262 Relationship Marketing