4 The Sunday Times May 29, 2022
BUSINESS
I was a burnt-out baker, but
now only our sales are hot
Steve
Magnall
joined
forces with
Rebecca
Bishop to
resurrect
Two
MagpiesR
ebecca Bishop, a
professional baker, was
ground down. Having
run her Norfolk bakery
Two Magpies on her
own for three years after her
then-husband left suddenly,
she was nearing burn-out.
“It was really challenging
... because we were both
directors and I couldn’t even
contact him for a year,” said
Bishop, now 55.
She then met Steve
Magnall, now 58. After a brief
spell helping her to try to sell
the business, they decided in
2018 that he would join her as
co-owner and chief executive,
and together they would
grow Two Magpies to
multiple sites.
They now own seven cafés,
two production kitchens and
a baking school in East
Anglia, and had sales last year
of more than £5 million and a
profit of £440,000. The
company is projecting sales
of £7.5 million this year and
employs 150 staff.
Bishop discovered a
passion for baking quite late.
She was in her 40s, working as
a schoolteacher, when she
started making sourdough. Ittook a while to hone her craft,
with her three children — now
32, 30 and 27 — and her guinea
pig s to look after. “I made lots
of flat-as-a-pancake
sourdoughs,” she said. “My
children used to call them
cowpats... They like it now,
though.”
She founded Two Magpies
in 2012, investing £250,000
from the sale of her house to
start the bakery in what had
been a small gift shop on the
high street in Southwold,
Suffolk. She opened the
doors in April 2013 and was
inundated with customers.
But the early success came
at a price: “It was very
gruelling and we didn’t have
enough people.” She and her
ex-husband had “never run a
business”. They thought the
only way to make it work was
to bake through the night and
then oversee the shop in theHOW WE MADE IT
REBECCA BISHOP AND STEVE MAGNALL
CO-OWNERS OF TWO MAGPIES
Hannah Prevett
Deputy Editor, Times
Enterprise Networkmorning. But then “our
marriage [ended] and he just
left,” she added. “We were
phenomenally successful but
I found it very tough.”
When she met Magnall in
2016, she was reassured by
his successful career; he was
then boss of nearby St Peter’s
Brewery. He took a day off to
support her in the business,
before joining full time.
The pair were romantically
involved and married for two
and a half years, but split up
in 2020. “We’re better
business partners than we are
married people,” said Bishop.
After Magnall bought into
the business in 2018,
expansion began, with three
new outlets being opened by- Since then, they have
fought their way through
lockdowns and are now
growing sales.
Asked for her best piece of
advice for entrepreneurs,
Bishop said: “Stick to your
values. [Despite cost
increases] we’re not about to
use ready mixes or start using
margarine. That’s not what
we do. We’re about quality.”
BAD BLOOD AND RED TAPE IN
KLARNA’S REVOLUTION
With its bold pink
branding, and tie-ups
with Snoop Dogg and
Lady Gaga, Klarna was
hard to miss when it
first came to the UK,
writes James Coney,
Sunday Times Money
editor.
It offered a
shopping revolution:
you could order
clothes with no
upfront fee, send back
what you did not want
(also often free) and
then either pay for the
whole purchase a
month later or in three
instalments. There
was no interest and no
charges.
The business model
was based on volume
— Klarna is paid
commission by
retailers for every
customer who uses it.
Its boast is that
because shopping
through its app is so
easy, customers will
spend more. This hasled to accusations
that it is fuelling debt
among those who can
ill afford to repay it.
Klarna says customers
are allowed to borrow
only a small amount to
start with, and that its
algorithm will prevent
those who fail to repay
from borrowing more.
Although Klarna is
regulated, its most
popular product is
not. As a result,
shoppers have no
statutory consumer
protection or access
to an independent
ombudsman service.
But regulation and
extra red tape,
possibly slowing
down that fast
payment process, is
coming. And now with
retailers such as Zara
no longer offering free
returns, another big
attraction of Klarna
has been taken away.
The next 12 months
could be tough.Job cuts at Klarna have sparked alarm at fintechs that are relying heavily on shoppers
fidence has sunk to its lowest level since
1974, while an analysis by accountancy
firm EY found that of the 110 profit warn-
ings from listed companies so far this
year, 48 cited rising costs and overheads.
While the warning signs of recession
might be flashing, privately owned com-
panies were probably braced for a revalu-
ation after the dramatic moves in tech
firms listed on stock markets, with the
Nasdaq having lost a third of its value
since its high in November. Interest rates
have played a key role as venture capital
funds used to be able to finance their
deals cheaply; now, both the Bank of
England and the Federal Reserve are rais-
ing borrowing costs to tame inflation.
Local Globe, the venture capitalist
backer of firms such as Wise, the money-
transfer business — whose shares are
down 52 per cent so far this year — wrote
to its founders in February to try to help
through the changing times ahead: “It
may take longer to raise capital ... valua-
tions may come under pressure.” First
solution? Preserve cash.
Klarna’s results last week showed
losses ballooning in the first quarter to
2.5 billion Swedish krona (£200 million)
and its cashflow turning negative to the
tune of 7.3 billion krona.J
ames Wise, partner at venture capital
firm Balderton Capital, warned that
more trouble was coming. Having
seen tech stocks crash, he said inves-
tors are looking nervously at the cur-
rent operations of companies, rather
than the potential future profits from
their technology.
The pressures could delay efforts by
financial technology (fintech) companies
to raise more cash or even float. Yet some
were insisting last week that they were
immune. Revolut, the finance app valued
at $33 billion in a fundraising last year,
insisted it was still hiring, as was Starling,
the digital bank.
Even so, these established fintechs
seem unlikely to be insulated from the
pain felt by consumers as the cost-of-liv-
ing crisis develops. While the financial
services industry is not yet reporting a
rise in bad debts or seeing obvious signs
of consumer distress, senior figures fear
it will soon become apparent — and BNPL
might be the first indication of problems.
A review of the sector by former finan-
cial regulator Chris Woolard cited one
bank that had found that 10 per cent of
customers making a payment to a BNPL
provider in November 2020 had
exceeded their overdraft limits.
The Treasury has consulted on poten-
tial regulation of the sector and expected
to publish a response in the coming
weeks. Klarna’s success drove estab-
lished banks such as NatWest, Barclays
and Lloyds to look at ways to provide
credit in a similar way. NatWest’s version
is due in the summer.
One factor that might protect consum-
er-focused businesses is the unexpected
strength of the jobs market. In the UK,
there are now a record 1.3 million vacan-
cies — more than people looking for
work. This is a good sign but also one that
economists will be watching closely.
Rob Wood, chief UK economist at Bank
of America, said: “The labour market
tends to lag. If spending is down then
three to six months later, you might find
employment turning down.”
That’s when the klaxon will really blare.Consumer
spending is
the only thing
holding the
economy up
the doorstep, said it would cut 300 staff.
Its Turkish-based rival, Getir, is cutting
14 per cent of its workforce and Zapp is
also said to be axing staff.
That Klarna’s move was a flashing
warning sign was a given. The question
was, a warning of what?
Three immediate theories have sur-
faced: one, that this is a problem specific
to Klarna or its “buy now, pay later”
(BNPL) model; two, that it portends loom-
ing recession for all consumer businesses;
three, that private equity firms, like those
behind Klarna, are ordering tech firms to
slash costs as rising interest rates mean an
end of the era of free money.
Observers have largely coalesced
around a fourth option: all of the above.
While Siemiatkowski denied the prob-
lems were Klarna specific, his cuts came
amid expectations that the company’s
next attempt to raise money will value it
at 25 per cent less than at its last fundrais-
ing. This is known in the venture capital
jargon as a dreaded “down round”.
In a country such as Britain, where
two-thirds of gross domestic product is
generated by consumers, any signs that
people are spending less, or borrowing in
a different way, are subject to scrutiny —
particularly at a time when inflation is
rampant and wages are not keeping pace.
“Any lay-offs by consumer companies
are worth watching,” said Simon French,
chief economist at investment bank Pan-
mure Gordon. “The only thing saving the
economy from a recession is going to be
strong labour demand and consumers.”
He added: “Avoiding a consumer-led
recession hinges now on the propensity
of households to take on credit and draw
down their savings to see them through.”
For many, the klaxon had been sound-
ing before Klarna’s move. Consumer con-700
staff laid off by Klarna —
10% of its workforce300
ILLUSTRATION: TONY BELLT
he video was not one that
Sebastian Siemiatkowski had
ever thought he would have to
record. The founder of Klarna
looked into the camera last
week and told his 7,000
global workers that 700 of
them — 10 per cent — were
going to lose their jobs.
They were stunned. A year
ago, the Swedish firm had been valued at
$46 billion (£37 billion) in a fundraising
round and was thriving as online shop-
pers clicked on the option to “buy now,
pay later” to allow payments in instal-
ments, interest-free, through Klarna.
Its secret sauce: rather than make its
money on interest paid by the shopper,
Klarna charges the shop, making itself
the consumer’s friend and a vital market-
ing tool for the retailer.
In his broadcast to his workers — he
calls them “Klarnauts” — Siemiatkowski
declared that the world had changed since
last autumn, when he set out his business
plan for 2022. “We have seen a tragic and
unnecessary war in Ukraine unfold, a shift
in consumer sentiment, a steep rise in
inflation, a highly volatile stock market
and a likely recession,” he said.
Klarna’s klaxon sent shockwaves
through the industry — and seemed to
start an unwelcome trend among fast-
growing young tech companies. German-
based Gorillas, one of the plethora of
start-ups offering grocery deliveries toBuy now, get caught in recession later
jobs will go at Gorillas, the
grocery-delivery companyJILL
TREANOR