Ottakar's plc

views updated

Ottakar's plc

St. John's House, 72 St. John's
London
SW11 1PT
United Kingdom
Telephone: 44 20 7978 7700
Fax: 44 20 7978 7711
Web site: http://www.ottakars.co.uk

Public Company
Incorporated: 1987
Employees: 1,360
Sales: £153.7 million ($246 million) (2004)
Stock Exchanges: London
Ticker Symbol: OKR
NAIC: 451211 Book Stores

Ottakar's plc is one of the United Kingdom's largest and fastest-growing retail booksellers. London-based Ottakar's is also one of the country's few truly nationally operating booksellers, with a network of more than 120 shops across the United Kingdom, including a strong presence in Scotland. The company boasts a highly flexible bookshop concept that enables it to adapt its store sizes and features to individual local markets. As such, the company is able to retail successfully in catchment areas of as low as 32,000 people, with store sizes ranging from as small as 2,000 square feet to as much as 20,000 square feet. Ottakar's has successfully adapted retail bookstore sales techniques from the United States, introducing family-friendly bookstores to the United Kingdom, featuring in-store reading areas, coffee bars, and space for events such as readings and book signings. The company's larger stores also feature stationers corners and the company-developed Launch Pad concept of books and educational materials geared toward the 5-year-old to 12-year-old set. Ottakar's—the name comes from the title of a Tintin comic book—also has distinguished itself through its hiring policy, giving it a very stable, highly knowledgeable sales staff. Founder James Heanage remains the company's managing director and one of its largest shareholders. Ottakar's has been listed on the London Stock Exchange since 1998. In its 2004 fiscal year the company recorded sales of nearly £154 million ($246 million).

Adman's Brainstorm in the 1980s

James Heanage began his professional career in the advertising industry, working first for D'Arcy MacManus, before joining Ogilvy & Mather in the early 1980s. There, Heanage became the account director for the prestigious Guinness account. Yet Heanage remained unsatisfied. As he told the Sunday Times, "I knew that if I didn't like the Guinness account, I would never like advertising." Instead, Heanage began looking for new business opportunities, adding: "I had always thought I would work for myself eventually. I was always anti-establishment—if you believe you can do something better than the person above you, there are few alternatives. I was not good at working for anyone else."

Heanage started searching for a potential outlet for his entrepreneurial plans. Among the ideas he considered were the creation of a video player rental service for ski resorts and restaurants with bookstores. Heanage's work with Ogilvy & Mather eventually helped him spot a new niche, however. While conducting consumer panel studies, Heanage discovered a gap in the United Kingdom's retail book market.

Into the mid-1980s, that market was dominated in large part by traditional, small-scale, and independent booksellers. While a number of national chains had begun to develop—such as WH Smith, Waterstone's, and Dillons—these chains tended to target only the largest urban markets. Book shopping remained an intimidating proposition for many British consumers. Yet Heanage recognized the potential for adapting new bookselling formats then being tested in the United States—which included added reading areas and coffee bars to encourage customers—that were transforming the book shopping experience into a more informal, family-oriented activity.

Heanage began devising a business model for his proposed company. One of the features of Heanage's model was to target smaller market locations, where rents were low and his own stores would face less competition from the larger chains. Heanage also sought a more restricted, specialist orientation to his shops. As he told the Sunday Times: "Our idea was to use new technology to target customers within a specific area with a range of books that matched their interests, thus bringing a higher stock turnaround and profit."

Heanage settled on the name Ottakar's for his company, after the title of one his favorite books, King Ottakar's Revenge, part of the Tintin comic book series. Heanage next found a business partner in Donaldson Lufkin Jenrette investment banker Philip Dunne, who went on to become the company's chairman. Heanage and Dunne both took out second mortgages on their homes in order to launch Ottakar's, then went in search of additional venture capital, eventually convincing Baronsmead to put up £1.5 million.

By 1987, Heanage and Dunne had succeeded in finding locations in Brighton and Banbury for their first two stores. The new stores opened in 1988, but found mixed results. If the Banbury site proved successful from the start, the Brighton store was another story, and the company was forced to shut that store down after less than two years. Heanage himself described the Brighton shop as "an unmitigated disaster." Yet Heanage remained undeterred, as he told The Sunday Times: "We got the wrong site in Brighton. You can make a bad idea work in a good location, but not a good idea in a bad location. But I was confident that only the location was wrong because the idea was successful in Banbury and it was clear one part of the equation worked."

Ottakar's opened its third site in Salisbury in 1989, and with the success of that shop, was able to shut down the Brighton store and move ahead with building a national chain. Nonetheless, for the time being, Ottakar's remained a loss-making enterprise, lacking the critical mass that would enable it to sell books profitably.

The turning point for the company came in 1990, when Baronsmead agreed to put up an addition £1 million, which Ottakar's used to acquire the small six-store chain of the Town Booksellers group, which was active mostly in the West Country. With eight stores now converted to the Ottakar's concept, the company turned its first profit by 1992.

In that year, the company found new financial backing when venture capital specialist Foreign & Colonial paid in £1 million, in exchange for a majority share of Ottakar's. Backing from Foreign & Colonial enabled the company to step up its expansion. In that year, it made an unsuccessful attempt to acquire the Hammicks bookstore chain, then already a prominent bookseller in the southeast. Instead, Ottakar's continued adding new stores, and by 1995, the company had already achieved sales of more than £9 million. The company continued adding new stores, some through acquisition, such as its purchase of four Bells Bookshops in 1998. That acquisition brought the company's total number of shops to nearly 50, for sales of more than £36 million.

National Bookseller for the New Century

By then, however, Foreign & Colonial had begun to seek to cash in on its investment. While Heanage set his own goals on a public offering, for a time the company appeared a possible candidate for being bought up by a larger rival, specifically the United States' Barnes & Noble, then seeking an entry into the United Kingdom.

The two sides failed to reach an agreement, however, and Ottakar's did indeed go public in 1999. The initial public offering was a great success; launched at 153p per share, the stock price shot up to 204p by the end of its first day's trading, and soon after soared to 270p per share. The listing also gave Ottakar's the distinction of being the only pure-play bookseller to be listed on the London Stock Exchange.

Ottakar's turned toward the new century with ambitious expansion plans. The company continued to expand its store chain, entering the Scottish market with a store in Glasgow in 1999. Yet Ottakar's also sought a piece of the Internet action, launching an ambitious e-commerce site as well. At the same time, the company believed it had discovered a new consumer niche—that of the 5-to 12-year-old "post-Early Learning" segment—and developed a new retail format, Launch Pad, combining books and other educational toys, games, and materials. The company began rolling out the Launch Pad concept as in-store boutiques in its larger stores, while also developing an independent retail format for the concept.

By 1999, however, it became clear that the company's expansion plans had been too ambitious. As Heanage admitted to the Bookseller: "The most obvious failure of 1999 was opening some shops that didn't work initially and one that hasn't worked at all. Until then we had exercised enormous care in the selection of every single site. But the pressure of what was going on meant that we didn't research them quite as we should have." With its store expansion sputtering, and its e-commerce site performing well below expectations, the company found itself struggling to retain profits. By the end of that year, Heanage was forced to issue a profit warning—sending the company's stock price plunging to just 66p per share.

The fall in the company's share price left it dangerously vulnerable to a potential hostile takeover. Luckily for the company, however, no takeover ever came. Instead, Heanage devised a new strategy to carry the company into the next century. Ottakar's pulled the plug on its e-commerce site—which Heanage claimed had been set up in the first place due to pressure from the company's investors—and instead launched a new intranet focused on using online capacity to streamline its supply chain side. The company also scaled back its plans for the Launch Pad format, restricting it to an in-store boutique concept.

Company Perspectives:

Ottakar's today is a paradox. On the one hand it is a national book chain striving to offer uniform excellence in range and service across over 120 branches. On the other hand it is a collection of intensely individual bookshops, run with great autonomy by staff whose commitment to books is matched only by their commitment to provide a bookselling service tailor-made for their communities.

By 2000, Heanage and his management team had succeeded in returning Ottakar's to growth and profits. The company now sought to continue its store expansion, in part through targeting other bookstore chains. In 2001, the company was rumored to be in talks to acquire the troubled Waterstone's bookstore chain from HMV, although no deal materialized.

Instead, the company maintained an organic growth track for the time being, raising its store numbers past 75 by the end of 2001, and seeing its revenues near £100 million for the first time. At last, in 2002, the company turned to Scotland, acquiring the eight specialist book shops of the struggling James Thin company, which had been placed in receivership earlier that year. With its store network now at 86 stores, Ottakar's began a crucial shift away from its former reliance on book wholesalers to making its first direct purchases within Britain's publishing industry.

A new turning point for Ottakar's came in 2003, when the company announced that it had agreed to acquire 24 of the 25 Hammicks bookstores operating in southeastern England. The deal, dubbed "transforming" by the Bookseller, gave Ottakar's a nationally operating chain of more than 120 stores, with revenues nearing £154 million by the end of the company's 2004 fiscal year.

Buoyed by its new industry clout, Ottakar's set its sights on further expansion, with Heanage announcing in early 2004 the potential for as many as 300 Ottakar's shops in the United Kingdom over time. The company also began its first moves outside of its home base, opening its first store in Ireland that year. Meanwhile, the company had been experimenting with releasing its own line of branded products, including exclusive book titles, but also calendars, gift cards, stationery, and the like. Under Heanage's guidance, Ottakar's had built itself a solid position among the United Kingdom's retail bookstore leaders.

Principal Competitors

WH Smith plc; HMV Group plc; Surridge Dawson Ltd.; Martin Retail Group Ltd.; Waterstone's Booksellers Ltd.; Eason and Son Ltd.; Blackwell Ltd.; Borders UK Ltd.; TOG Ltd.; Remainders Ltd.; Ian Allan Group Ltd.

Key Dates:

1987:
James Heanage develops a business model for a chain of bookstores in England, and forms Ottakar's together with Philip Dunne.: 1988:
The first two stores open in Brighton and Banbury.: 1989:
The third store opens in Salisbury.: 1990:
The company closes the Brighton shop; the six-store Town Booksellers group is acquired.: 1992:
Ottakar's turns a profit; new capital backing is received from Foreign & Colonial.: 1998:
The company acquires four Bells Bookstores and goes public on the London Stock Exchange.: 1999:
The company launches an e-commerce web site and Launch Pad concept, but is forced to issue a profit warning at the end of the year.: 2002:
Eight James Thin bookstores in Scotland are acquired.: 2003:
Ottakar's acquires 24 Hammicks bookstores in southern England, boosting the company into the top three U.K. booksellers.: 2004:
The company announces the potential for as many as 300 Ottakar's shops; the first store in Ireland opens.