Don McCarthy is more recently known for heading up House of Fraser, but before this he spent 35 years shaping the modern footwear retail industry, making him a worthy winner of the Lifetime Achievement Award at the Drapers Footwear Awards 2015.
“Leaving school at 15 and then finding myself becoming the executive chair of House of Fraser is quite an achievement,” says Don McCarthy. “There isn’t one single thing [in my career] that stands out. It’s more going through that journey from being a stock boy to managing stores and working my way up from the extreme bottom of the pile to the top.”
Although best known in recent years for running HoF between 2006 and 2014, McCarthy’s heart has always been in the footwear industry, having been a major player in the market, directly and indirectly, for 35 years.
“I’m the son of an Irish farmer called Daniel who, when I said I was going into the footwear business [in 1970], looked at me as if I was mad, but I loved the industry so much. It really appealed to my ability as a salesman.”
Having grown up in southeast London, McCarthy joined now defunct footwear chain Stead & Simpson, which also ran shops under the Ravel and Stylo banners, straight from school at 15 years old. Quickly rising through the ranks, he became manager of a Stead & Simpson store in Streatham aged just 17.
“It was very a competitive industry. Every third or fourth shop was a shoe shop controlled mainly by the British Shoe Corporation. It was a great industry to go into,” he says.
In 1975, aged 20, McCarthy decided he wanted to work in central London, so joined premium footwear retailer Kurt Geiger as assistant manager of its flagship store in Bond Street. The business was then owned by the South African Spitz family, headed by David Spitz.
A year later McCarthy was asked by Spitz to develop Kurt Geiger’s new, cheaper women’s brand Carvela and he became area manager looking after 12 stores as well as important concessions in premium department stores such as Harrods, Selfridges, Fenwick, House of Fraser and Debenhams.
However, typically ambitious, McCarthy wanted to branch out and start his own business, so with the help of Spitz he founded the multi-brand footwear retailer Shoe Studio Group in 1991, which quickly established itself as a market leader with 270 department store concessions at its height during the early 2000s.
“At the time the British Shoe Corporation was in a real downturn. We bought the Bertie brand from it and developed brands like Roberto Vianni. Shoe Studio Group was a multi-fascia as well as multi-trading business through standalone stores and department store concessions.”
SSG was bought for an undisclosed sum by US footwear business Nine West in 1997, as it wanted to expand into Europe. This allowed SSG to add Pied a Terre and Nine West to its growing list of own brands.
As chief executive of SSG, McCarthy led a successful management buyout from Nine West in 2001 and the company established itself as one of the largest footwear and accessory companies in Europe, making £60m EBITDA on £140m sales that year.
However, McCarthy could see that the footwear industry was changing and specialists were beginning to struggle due to high rents and rising operating costs – a few years later they began closing down, including Ravel in 2007 and Faith in 2010.
“Footwear was moving from trading in freestanding stores as a brand to becoming an accessory in fashion stores. River Island, Next and New Look were taking market share. Shoes over £100 were predominantly being sold in department stores. The demise of the footwear chain was the biggest change in the market and I thought, ‘Right, it’s not just going stay the same,’ so I had to seek opportunities in other directions.”
McCarthy diversified into clothing, buying womenswear retailers Principles and Warehouse in 2004, merging the businesses with SSG to form Rubicon, which had sales in excess of £500m in 2004.
When McCarthy’s wife Diana fell ill with cancer in 2006, he sold Rubicon to Mosaic Fashions, owner of Karen Millen, Oasis and Coast, to spend more time with his family. Mosaic fell into administration in 2009, with Principles and Shoe Studio sold to Debenhams and Dune respectively.
In 2007, McCarthy joined a consortium including Icelandic investor Baugur and Scottish entrepreneur Sir Tom Hunter’s investment vehicle West Coast Capital to buy House of Fraser for an undisclosed amount, with McCarthy becoming executive chairman.
He says the strength of the SSG brands within HoF and the importance of footwear to the department store business made the transition a natural process and enabled him to still be involved with his first love while expanding into fashion.
“The footwear industry had changed. All of a sudden footwear was seen as an accessory to the clothing market. In a department store we sell footwear as an accessory to our main fashion business, so by buying HoF we made the best use of that change.”
He adds: “Footwear is a major part of the department store business as it is where people now go for a variety of brands at the better end of the market.”
McCarthy set about reshaping HoF into a leading department store at the “better end” of the high street and bought and developed in-house brands including reviving iconic 1970s label Biba to differentiate it from the competition.
“We moved upmarket away from Debenhams, which was a volume discount store. We made sure we had a point of difference by upping the number of in-house brands from four to 16 including the introduction of Linea and Untold.”
McCarthy’s next challenge was brought about by the financial crash in 2008, which caused financial strife for some of HoF’s investors, bringing about the demise of Baugur Group and Icelandic bank Landsbanki, McCarthy, working with chief financial officer Mark Gifford, secured the replacement of the company’s £214.5m debt with a long-term bond of £250m to successfully ensure HoF’s future.
“We were trying to restructure the financial balance sheet by issuing a buyer for the bad debt and making sure nothing happened to the business. There are a high number of retailers that have concessions in HoF, so it would have been a big blow to the high street if we went bust.”
Throughout 2013 and 2014 McCarthy sought new owners for HoF. “Following the recession shareholders needed to be replaced so we were trying fervently to find new owners for the business to drive it forward. A few people had approached us but they were unsuitable owners. Mike Ashley [Sports Direct owner] wouldn’t have been suitable. When the rumours came around that he was after it, many of the brands had major concerns that they would go into Sports Direct.”
HoF had discussions with French department store Galeries Lafayette and Qatari investment firms, but decided that Chinese conglomerate Sanpower was the best option for future growth and stability. And so in 2014 Sanpower acquired 89% of HoF’s shares for £480m, making the department store the first major British retailer to be purchased by a Chinese company (Ashley holds the other 11%, having bought it from Hunter).
“The deal with Sanpower gives the brands more financial security because of the investment into the business and also gives them the opportunity to go into Asia through the group’s department store subsidiary Nanjing Cenbest, without having to make investments in stores and having big liabilities.”
Following the completion of the sale in April 2014, McCarthy stepped down as executive chairman of HoF to focus on his investment vehicle No 9 , which was set up in July 2014. It now has nine franchise stores in Luxembourg across Paul Smith, Karen Millen, Gerard Darel, Oasis and Marc Jacobs fascias.
“My favourite role is as an active investor. I invest in people and businesses. I find I make money in my investments when I give my advice as well as my backing. Whether they listen is a different thing,” McCarthy laughs.
“I like to give back and nurture people the way David [Spitz] did for me. He must have seen something in me and he helped me to develop. He gave me some of the first opportunities to get on the ladder and he was an extremely generous-hearted man to allow me to learn.”
McCarthy, who is also a generous man when it comes to charity, having raised £1.5m for the Royal Marsden Hospital in Chelsea, which cared for his wife before she died from cancer in 2007, says retail is built on people.
“I’ve met some great characters. It’s a fantastic environment for hard-working people who have a natural ability to understand what people want. I work with a lot of chief executives and it’s great to see them develop and get on. I like to nurture people as it’s really important to do that. People are what it’s all about.”
What the industry has to say about Don McCarthy:
- Colin Temple, managing director of Schuh
“Don always comes across as a nice chap and I know he gives generously to charity. He must also be a good businessman, having steered HoF through some interesting times. He is well respected in the industry and I’ve never heard anything negative about him, which bodes well.”
- Daniel Rubin, executive chairman of Dune
“He built Shoe Studio into the dominant force in footwear concession retailing in department stores through his leadership and astute eye for product. He is an exceptionally talented and successful retailer with a clear vision and an unrelenting drive to motivate his team and partners to deliver it.”
- John King, former chief executive of House of Fraser
“Without a doubt one of the best people I have ever worked with. Don is a great leader with great vision and is charismatic and funny too. He is a team player and very supportive. Aside from that he is a successful entrepreneur and he thoroughly understands our industry.”
- Richard Wharton, former managing director of Office
“Don is a giant of the industry and when he was at the helm of Shoe Studio it was a formidable retailer and led the pack. The hugely successful concession business that he built has become the template that is often replicated, and he made a few bob as well!”
- John Egan, chief executive of Dune
“It is fair to say that everyone who has worked with him absolutely loves him because he is very clear with what he expects, a great communicator, always makes you feel valued and part of a team. It was certainly the highlight of my career working with him and I know from personal experience many other people feel the same. He is also unbelievably loyal and the first person I would go to with a business problem.”