The Hartstone Group plc
The Hartstone Group plc
Incorporated: 1985 as Glamar Group plc
Sales: £363 million
Stock Exchanges: London
SICs: 6711 Holding Companies; 2251 Women’s Full Length
& Knee Length Hosiery; 2252 Hosiery, Not Elsewhere
Classified; 5137 Women’s, Girls’ & Babies’ Clothing &
Accessories; 5199 Non-Durable Goods, Not Elsewhere
The Hartstone Group plc is a leading manufacturer in the international leathergoods and hosiery markets, supplying products both under its own brand names and for retailers’ own-label brands. From modest beginnings as a Leeds-based hosiery firm in the 1970s, the company became what the Observer called a “glamour stock” between 1989 and 1993, expanding rapidly through aggressive acquisition to become a significant force in its chosen markets. Serious financial troubles in 1993 caused a corporate shake-up and forced Hartstone to rethink its strategy. Today the company is pursuing a more moderate growth policy in its bid for success in the leathergoods and hosiery industries of the United Kingdom and abroad.
The company that was to become Hartstone began in 1975 as a small women’s hosiery distribution firm based in Leeds. Incorporated ten years later as Glamar Group plc, the company remained much the same until 1989, when Glamar became the basis of an ambitious attempt at corporate empire-building. The metamorphosis began with a senior management buyout of the company, led by Stephen Barker, who became chief executive and chairman. Under his direction, the new management embarked upon a dramatic course of acquisition. Targeting the hosiery and leathergoods markets, the company (renamed the Hartstone Group in 1990) began scooping up small firms at an unprecedented rate. The accessories industry was extremely fragmented, and Hartstone aimed to integrate these small businesses into a coherent, rationalized whole that would benefit from greatly increased market share, economies of scale, and stronger purchasing power. Between 1989 and 1993 Hartstone acquired approximately 20 companies at a cost of about £200 million.
By 1993 Hartstone had achieved a formidable position in the hosiery and leathergoods markets. Some of the company’s most significant interests were in the United States, where it owned Etienne Aigner and Michael Stevens, both acquired in 1991. The former designed, sourced, and distributed women’s shoes and leather accessories for the North American market. A well-known brand since the 1950s, Etienne Aigner was the fourteenth-most-recognized designer brand among American consumers. Producing moderate-priced shoes and moderate- to higher-priced handbags and small leathergoods, the company sold its products primarily through department stores, including Macy’s and Lord & Taylor, and also through its own retail stores located in out-of-town centers. The latter were outlets for the firm’s lower-priced lines and discounted last-year’s lines; while margins on such items were necessarily lower, the retail stores were useful for clearing out older stock and improving awareness of the Etienne Aigner brand. Nonetheless, Hartstone did not want to devalue the brand, and carefully limited its agreements to sell its products through discount stores.
Etienne Aigner had a customer base in the southeastern United States and under Hartstone’s direction was expanding into the central and western regions of the country. When Hartstone purchased the company, its products were traditional in design and targeted at women between 40 and 50 years old. Hartstone introduced a more contemporary look in order to appeal to women between 20 and 40 and began licensing the brand name to manufacturers of other products, such as shirts, ties, and fragrances.
Hartstone’s other principal U.S. acquisition was Michael Stevens, a designer, sourcer, and distributor of leather, vinyl, and fabric handbags and small leathergoods. With lower-priced goods than Etienne Aigner, Michael Stevens enjoyed approximately 30 percent of the market in handbags priced between $20 and $40. The company sold products primarily under its own name (accounting for some 80 percent of sales), but also marketed goods under the brand names Valerie Barad and Sereta, and in addition furnished some retailers with own-label products. Selling mostly through chain stores, Michael Stevens controlled approximately six percent of the American market in handbags and four percent in small leathergoods.
Hartstone’s U.K. and European leathergoods businesses operated under the umbrella of Hartstone Leathergoods Ltd. The group included Symphony International, a producer of lower-priced synthetic handbags; Jade Accessories, a manufacturer and importer of low- and medium-priced leather and synthetic handbags and belts, marketed through department stores and chain stores; Lanca, a mid-priced branded range; the more exclusive Triad, producing handbags, briefcases, travel bags, purses, and wallets; and the Luggage Company, a designer, sourcer, and distributer of synthetic suitcases, briefcases, and travel cases. In Spain Hartstone owned Cima, a manufacturer of top-of-the-line leathergoods that sold both under its own name and under such prestigious brand names as Christian Dior and Lladro. Rubo Lederwaren, a Dutch firm acquired in 1991, distributed leathergoods in the Netherlands and Belgium.
Hartstone’s hosiery division was equally extensive and international. The company’s 1991 purchase of Aznar gave it one of Spain’s largest manufacturers of hosiery, producing the women’s brands Marie Claire and Ch é rie, as well as Kler, a popular brand of men’s socks. Aznar International, a 1993 acquisition, added to Hartstone’s product line underwear, lingerie, nightwear, and swimwear, principally for the Spanish market. Ipko-Amcor and Werner, brought into the group in 1990, were the company’s Dutch and German producers respectively of hosiery and socks. Cogetex, in France, enjoyed 30 percent of the domestic market in women’s hosiery. Hartstone sold its Well brand primarily in French supermarkets and hypermarkets, and as hypermarkets expanded into Holland, Germany, Spain, and Italy, Well hosiery products penetrated these markets as well.
In the United Kingdom, Hartstone occupied a strong position as the second-largest supplier of women’s hosiery in the country. Most of Hartstone’s products (some 70 percent) were offered as own-label brands by chain stores, although the group also produced its own brands, including the well-known Bear Brand label. The company offered stores’ own-label socks for such prominent outlets as Boots, Marks & Spencer, and Tesco, as well as the Bridgedale brand, a line of outdoor socks. Hartstone moved into casual wear with its 1990 purchase of Pamplemousse, which expanded into France and Holland from its base in the United Kingdom.
In May 1992 Hartstone was able to announce a 200 percent rise in profits, with sales up 245 percent to £240 million. It was an impressive tribute to the tactics of the “whiz-kids who took over Hartstone … and turned it into a go-go stock,” according to Investors Chronicle.
It was also a short-lived triumph, as one year later it became apparent that Hartstone was in serious trouble. In the course of one dramatic day, Hartstone issued a profits warning (its second in three months), announced that the company had breached certain covenants of its lending agreements, and accepted the resignation of chief executive and chairman Stephen Barker.
The company had extended itself too far, too fast: according to Investors Chronicle, Barker had “failed to put in place sufficient management systems at Hartstone to control the sprawling empire.” The company’s lenders imposed a standstill and Hartstone was forced to scramble to secure new lending agreements to keep it afloat—a process that Shaun Dowling, the company’s new chairman, described as “exhausting, time-consuming and very costly negotiations, shuttling between the United Kingdom and the United States, trying to reconcile and resolve the positions of different lenders and their respective advisers.” It was reported that at one point in the negotiations Dowling was forced to pledge £50,000 of his own money, and when the cost of the refinancing was finally assessed, it came to a hefty total of £13.6 million.
With a restructured management team and a radically altered board of directors, Hartstone set about retrenching. It became apparent that the company could not sustain both its leather-goods and hosiery divisions at their current level. Deciding to concentrate on the leathergoods division, Hartstone jettisoned Cima, Cogetex, and Pamplemousse, among many other businesses. In a break with its past, the company also sold the original Glamar hosiery firm.
In its leathergoods division, Hartstone reorganized its business to reduce waste and increase profitability—at a cost to the company of some £10 million. Hartstone renewed its focus on its own branded products, while at the same time strengthening its reliance on made-to-order products for selected well-known, high-quality retailers’ own-label brands, which was a lower-risk enterprise. The company established more cautious financial policies, emphasizing cost-effectiveness and operational efficiency, cutting central costs, curtailing borrowing, and improving its central controls.
Chairman Dowling explained the previous trouble thus to shareholders: “It is now evident that the speed of [Hartstone’s] growth was not balanced by the imposition and maintenance of effective controls by central management.…” This explanation was given in a 1994 document asking for a two-for-one rights issue which was to raise £30 million, half of which was needed to repay some of the debt demanded by the company’s creditors. On hearing this news, the Mail on Sunday commented caustically that Hartstone “knows how to get up shareholders’ noses”; be that as it may, the shareholders unanimously agreed to the rights issue, and although only 45 percent of the available shares were taken up, enough money was raised to satisfy the company’s lenders.
Meanwhile, former chief executive and chairman Stephen Barker instituted proceedings against Hartstone for a compensation package of £400,000 for loss of office. The company paid him £60,000, but denied that Barker was entitled to more. Eventually, advised that it would lose a legal battle over the matter, Hartstone settled out of court, giving Barker a total of £280,000.
In June 1995 Hartstone experienced what the Financial Times called a “sharp swing back into the black,” showing profits of £4.7 million as compared to 1994’s losses of £70.7 million (although much of that loss, it should be noted, was attributable to exceptional costs arising from restructuring, closures, and disposals). Hartstone’s chairman commented drily that his company was “just about respectable” now.
With its resources admittedly insufficient to actively pursue dominance in both its leathergoods and hosiery divisions, Hartstone has chosen to concentrate on building the former. (In the mid-1990s the company’s intentions were to retain the more established, reliable elements of its hosiery interests, although there was some speculation among financial analysts that Hartstone might in the future decide to devote itself entirely to leathergoods.) As Hartstone continues to enhance the promotion of its branded goods, the company hopes to move increasingly into licensing arrangements whereby these brand names may be used by suppliers of related products. As part of a longer-range plan, as the brands become more established, the company intends to seek international expansion, for both its American and British operations.
Aznar Industrial SA (Spain); Aznar SA (Spain); Etienne Aigner, Inc. (U.S.A.); Hartstone Leather-goods Ltd.; Ipko-Amcor BV (Holland); Michaels Stevens Ltd. (U.S.A.); Rubo Lederwaren BV (Holland).
“Barker Takes Action as Hartstone Loses £72m,” Daily Mail, July 16, 1994.
“Firm Hands at the Helm,” Investors Chronicle, May 19, 1995.
“Going the Rights Way,” Mail on Sunday, July 31, 1994.
“Hartstone Acts to End Payout,” Daily Telegraph, July 16, 1994.
“Hartstone Hosiery Sale to Courtaulds Textiles,” Financial Times, January 29, 1994.
“Hartstone Investors Back Rights,” Times, August 9, 1994.
“Hartstone May Drop Euro Tights,” Observer, January 9, 1994.
“Hartstone £71m in the Red and Calls for £30m,” Financial Times, July 16, 1994.
“Hartstone £280,000 Settles Row with Former Chairman,” Daily Telegraph, June 16, 1995.
“Hartstone Rejoins the Dividend List,” Financial Times, June 16, 1995.
“Hartstone Sells French Arm to Courtaulds for £45m,” Independent, January 29, 1994.
“Make or Break,” Investors Chronicle, July 22, 1994.
“60 Jobs Secured in Madison Hosiery MBO,” Yorkshire Post, May 10, 1994.
“Untimely Horror Story,” Investors Chronicle, June 4, 1993, p. 16.