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Ted Baker at a turning point without Ray Kelvin

As Ted Baker founder and CEO Ray Kelvin resigns from the business amid allegations of misconduct and the company wrestles with operational and financial problems, Drapers assesses what the future holds for the British brand.

Ted Baker founder and chief executive Ray Kelvin resigned with immediate effect today following allegations about his workplace conduct. A petition that had reportedly been signed by members of staff accused the founder and CEO of “forced hugging”, and claimed Kelvin asked “young female members of staff to sit on his knee”, as well as regularly making “sexual innuendos”.

Kelvin, who denies all allegations of misconduct, took a voluntary leave of absence from his role December. Since that date an internal independent committee has been investigating the allegations and commissioned law firm Herbert Smith Freehills to investigate the company’s policies, procedures and handling of HR-related complaints.

It is a good thing that he has resigned to draw a line under the whole situation

 Emily Salter, GlobalData

 

The investigation is expected to conclude at the end of the first quarter or early in the second quarter of 2019. Acting chief executive Lindsay Page has agreed to continue in this role and non-executive chairman David Bernstein will act as executive chairman up until 30 November 2020.

Forward motion

Industry experts have said Kelvin’s resignation will allow the company to move forward, whatever the outcome of the investigation.

“It is a good thing that he has resigned to draw a line under the whole situation. Even if he is found guilty, the effect should be minimised because he has distanced himself from the company,” says Emily Salter, associate analyst, retail at GlobalData.

“Although Ray has played a massive role in the company, the staff will have a good vision. It’s a well-established brand, so they are well positioned to keep the brand identity going.”

There is little doubt that this much-loved British brand has the opportunity to thrive and outlive any one individual

Clare Kennedy, AlixPartners

Fran Minogue, managing partner at headhunter Clarity Search, echoes this sentiment, adding that the brand is in good hands in the short term: “Lindsay is very experienced and has in effect been running the business for a while. He provides a sense of continuity and really understands the brand. He’s a good leader and a good manager.

“It has a well-established handwriting, which can be developed. The business is in very good hands but until we know what the creative team might look like, and who is replacing Catherine Scorey [as womenswear director following her exit in June], it’s hard to predict in the long term.”

Victoria Nightingale, director at headhunter Barracuda Search, agrees that the womenswear role is crucial to the future of the business: “There is a question mark around the product side of things. After so many years Catherine [Scorey] was very much in charge of what that handwriting looked like. Ray never wanted to bring in people from outside, so everyone always had a certain taste level.

“Ray is no longer there as a guardian, so if they bring somebody in externally, they run a risk of them tweaking the handwriting. Does Lindsay want to take a chance to put a stamp on the business or is he ‘Ted’ enough to see himself as caretaker?”

Financial future

Aside from the controversy surrounding Kelvin, Ted Baker’s impressive financial standing has also taken a knock. Last week, it revealed that its run of impressive wholesale, retail and online sales growth has come to an end. Pre-tax profits for the year to 26 January are now expected to be in the region of £63m, compared with the £74m previously expected by analysts.

Ted Baker gave three reasons for the warning. First, the weakness of sterling against the dollar and the euro in the last week of its financial year. Second, £2.5m in additional product costs that arose in the second half. Third, an unanticipated write-down in the value of its inventory of around £5m, “as a result of recent systems and warehousing transitions in Asia and the US, as well as a more prudent view on aged stock”.

These factors notwithstanding, some industry observers believe Ted Baker is starting to succumb to the prevailing tough trading conditions.

“Brexit is going to affect everyone at some point,” says the managing director of one premium fashion retailer. “Asos is being hit [the etailer issued a profit warning in December] and there are more to come.

There is a question mark around the product side of things 

Victoria Nightingale, Barracuda Search

“The bottom line is that the economy is on its knees. Ted [Baker] is caught in a headwind across its markets: France and Germany are seeing a slowdown, and the US has started to tail off. But it’s the macro [environment] that drives all of that.”

Clare Kennedy, director at turnaround consultancy AlixPartners, agrees that Ted Baker is facing many of the same issues as its rivals, adding: “Individually each is an addressable problem, but collectively they combine to be greater than the sum of the parts. One can argue that issues such as currency fluctuations are, of course, out of any retailers’ hands, but what it does do is shine a light on underlying areas of weakness in the overall cost base.

“The management team must now focus on getting the operational basics right to meet today’s volatile retail environment. Additionally, they will no doubt be exploring creative options, including bringing in outside talent, where this may well be a positive opportunity to take the brand in new directions.

“If they get this combination right, there is little doubt that this much-loved British brand has the opportunity to thrive and outlive any one individual.”

Salter is among those who believe the profit warning is merely a blip in an otherwise perfect record: “Ted Baker has shown that it can bounce back, as it did with impressive sales growth over Christmas after muted performance throughout the financial year, proving that despite weak consumer confidence, premium lifestyle brands still hold appeal for consumers.

“It is also well positioned to deal with the continued shift to online spending, as its online sales continue to grow thanks to its strong multichannel offering. Ted Baker did not point to demand issues in its profit warning, so the outlook for the brand is positive, as long as it retains its strong brand identity and product continuity.”

 

The Drapers Verdict

When any founder CEO exits a business, the future can look uncertain. Kelvin has been the heart and soul of Ted Baker since its launch in 1988. The allegations against him and the ensuing media storm have undoubtedly had an effect within the business and raised questions among the wider industry. But the swift action of the board, coupled with Kelvin’s departure, means its good reputation as a strong, stable business remains largely intact.

Ted Baker is a strong brand that will bounce back, but the business can not be complacent. Brexit will only bring more fluctuations in foreign exchange rates, the issues with its cost base need to addressed, and the key womenswear design director role needs to be filled. Despite the challenges ahead, Ted Baker is a brand that can survive a few bumps in the road.

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