Interview: Majestic “not likely” to disappear from high street CEO insists
Majestic Wine boss Rowan Gormley said the ‘radical’ decision to sell its UK retail arm now, while the business was profitable gave it many more options, as he insisted the name was unlikely to disappear from the high street.
Speaking exclusively to the drinks business this morning, Rowan Gormley scotched some of the speculation around Monday’s surprise announcement that Majestic is rebranding as Naked Wines and selling off its UK retail business to concentrate on its growing online wine subscription service, saying that while it may not be the “comfortable” thing to do, it gave the business more options.
“Lots of people have asked why are we doing this now and the answer is because we can, not because we have to. While that may feel radical to some people, by doing it now we have options,” he told db.
“We’re doing it now while the business is profitable, not when we’re against the wall in five years time.”
Gormley argued that this profitability meant Majestic was more likely to be sold as an ongoing concern, arguing that it was not in anyone’s interests to close down a profitable business.
“My expectation is that Majestic will keep as an on-going concern, which is fundamentally different to an LK Bennet, which was game over,” he told db.
“It may be split 10/90 one way, or 90/10 another way or 50/50, it doesn’t matter – but there will likely to be two businesses at the end of this, one of them is Naked, one of them is Majestic. They will still have a bunch of customers and there will still be opportunities for suppliers, and everyone else,”
“It’s a profitable business, and therefore it’s not in anyone’s interest to be shutting down a profitable business. What we’re saying is it is won’t be part of this business.”
Gormley denied that reversing the merger had been inevitable, arguing that the logic that made them an “excellent strategic fit” three and a half years ago had changed over the last two years.
“The strategic logic was that Majestic was generating cash and Naked was consuming cash. One of the fundamental things that’s changed is that Naked is no longer consuming cash, so the need to have those two companies together no longer exists” he told db. “If you looks at results for last two years, the pattern is well established. Online sales are growing at 20- 30%, and offline sales are shrinking, so what we’re doing with stores needs to change.”
There was, he added “a revolution” happening in retail – which wasn’t necessarily bad news, but in order to be one of the winners, the group needed to pick which side to back, a decision it said it flagged it “pretty heavily” six months ago.
It had become increasingly clear that Naked had the opportunity to be “a very substantial business” he continued, but to fulfil that would take more focused investment and time.
“Although we believe strongly Majestic can also be a winner, we don’t have money and resources to do both. One way or another we need to have a single business model and one brand, and therefore we either need to migrate [the businesses] together or take them further apart,” he said.
Currently the group is “testing the market” to determine the eventual scale and timescale of the sale of the Majestic businesses but Gormley remained tight-lipped about the fate of Majestic commercial and its fine wine arm, Lay & Wheeler, saying that the path for those businesses would be unveiled in June.
Increased cost base
Gormley admitted that the worsening economic climate and Brexit uncertainty had had an impact, having increased the cost base by up to £40million, through changes to the currency and exchange rate, impact of duty, rises in the minimum wage and rates increases, which he said “hadn’t helped”.
“When we first started we could see there were opportunity to improve the retail operation and the team have done a spectacular job doing exactly that. But I’ve previously described it as running really hard up a down escalator and when £40 million of cost gets dumped down on you, it’s really hard for a business to continue to grow it. And the fact that they have managed to do so is all the more credit to them.”
“We took a company with declining sales, but sales of £20 million, we’ve reversed the sales decline, and though we’ve had £40 million costs added through no choice of our own, we’ve still got it in double digit profitability.”
However he admitted that while there were retailers looking for space to expand, there was also the option to sell for residential, as already revealed by db.
“The alternative use for a lot of our sites is to develop them into flats for example, and not necessarily as retail, but there are retailers who are looking for space,” he said.
He added that there was still a future for specialist wine retailers.
For db’s initial analysis of Majestic’s shock change in tack, see here