by Real Business - Thursday, 30th August 2007

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When Philip Green bought BhS from Storehouse in the spring of 2000, as well as its 160 stores and 17,000 staff, he inherited a massive pile of stock; £200m of it in the business and £300m more on order. Green reckoned that the previous management had been lambs to the slaughter in their dealings with suppliers. But it was too late to do anything about the £200m of suits, skirts, shirts, coats, tights and myriad other items already on the high-street racks and in his storerooms. He would have to drive them out of the stores as best he could.

But the £300m on order? Here there was room for manoeuvre, room for one of Green’s favourite activities: negotiation.

Newly installed in the BhS head office on London’s Marylebone Road, the owner of one of Britain’s oldest high-street names picked up the phone. He called a long-standing supplier who was due to deliver £6m-worth of already agreed clothing. Could the supplier come to Marylebone Road, Green asked. It would be good to meet.

On the day of the meeting, Green – a man with an obsessive and instinctive feel for what shoppers will see as good value – asked for one sample of every item in the entire range of this £6m order to be brought to his boardroom.

“I got all this stuff out and hung it up in the boardroom, all round the room,” says Green, sitting at a large glass table in his airy corner office at BhS; he’s enjoying this story. “I said, ‘right, we’re going to buy it all again’. Our supplier said, ‘what do you mean? You’ve already bought it’. I said, ‘yeah, but just for a bit of fun, let’s buy it again.”

Green walked around the room, examining each item as if he were seeing it for the first time and working out in his head what he thought the goods were worth. When the exercise was over, he turned to his increasingly anxious supplier and presented him with a choice.

“I said, ‘look, this is where I think we are. You deliver the £6m of goods, you get a cheque and don’t come back. Or let’s get in the real world and help me understand why I would pay, for instance, £9 for something that’s worth £4. So we went through it all again, we got some discounts, some money back,” he says.

So £6m became what? £4m? “I can’t tell you that,” says Green, smiling and looking pretty pleased with himself. “We just got a more intelligent understanding of the way forward.”

Philip Green, the 50-year-old self-made entrepreneur became a billionaire in record time on the strength of his turnaround at BhS and has just become the UK’s second-biggest retailer with the £770m acquisition of Arcadia. When Green talks about getting a “more intelligent understanding of the way forward”, he means only one thing: “Do business my way or don’t do it at all.”

Listening to Green on the prospects for Arcadia - simple words with a hint of menace - “Going from public to private requires a different focus. It’ll be about getting people to focus on trading to maximise the opportunities for the brands. It’ll be about sourcing better, buying better and getting people to be traders rather than corporate animals. It’ll be about getting rid of all the corporate crap.”

Green’s skills and style have been honed during 30 years in the retail trade. Born in Croydon in 1952, when he was just 12, his father died. Green was sent to Carmel, an independent school in Berkshire. After leaving school, he started out working for a shoe importer.

At 21 he borrowed £20,000 from Barclays and began buying and selling clothes.

In 1987, he moved into the quoted arena, investing £3m in Amber Day, a clothing manufacturer and distributor. In 1992 he was ousted by institutional shareholders when he missed a profits forecast. The City and Green have made uncomfortable bedfellows ever since.

In the nineties Green made money in retail investments and hit the headlines in 1999 with a £560m hostile bid for Sears. Backed by the Barclay brothers, he broke up the business, making £150m in the process and going on to plan an audacious yet ultimately abortive £7bn bid for Marks & Spencer.

Within three months Green made his move on BhS. Long-standing suppliers would find a new regime was about to begin.

But what is the Philip Green way? Are these bully-boy tactics or is it merely astute negotiation allied to a non-conformist style that has the establishment bleating “it’s just not cricket”?

Green certainly has a reputation for bludgeoning people (verbally, you understand) who don’t do what he thinks they should. Journalists who write things he doesn’t like, will receive the full “Green treatment” over the phone – furious, threatening and rude.

At the same time, he has proved himself a master at using the press to ridicule the management of other businesses he regards as “useless.” Earlier this year when discussions with Woolworths on a BhS/ Woolworths merger came to nothing, Green insisted on referring to Woolworths’ chairman Gerald Corbett as “Ronnie” and joking: “At least Ronnie Corbett got paid for being a comedian.”

Of Trevor Bish-Jones, Woolworths’ chief executive who acquired the Jones in his surname from his first marriage, Green says: “It’s a good job his first wife wasn’t called Miss Bosh, don’t you think?”

Jokes aside, the serious point is that Green doesn’t play the game as others play it. This can make him a tricky and potentially dangerous operator with whom to do business.

When news of the possible BhS/Woolworths deal leaked – by which time talks were over – Green told journalists on the record that Woolworths’ management “clearly does not have a strategy or a game plan.” He also claimed: “The whole thing was them trying to extract a bid from me. They wanted to sell us the whole company at a premium.”

Woolworths may have disagreed with this version of events, but a sliding share price and two profit warnings since flotation in 2001 made rebutting Green’s attacks rather difficult. And the “Ronnie” and “Bish-Bosh” gags made for lively copy. There was little doubt about whose reputation emerged best from the abortive talks.

Green plays many roles each day. Ask him whether he crosses the line between tough negotiator and bully, he pauses, thinks for a moment and says:

“Do I use my seat to bully people? No, I don’t. Would I phone someone to get a better price? Yes, I would. I don’t phone all the time. If you phone occasionally, it’s more likely they’ll accommodate me for the sake of ongoing business.

“Now, when I’m negotiating with these merchant banks, I don’t wanna pay them anything. But we’re into different territory there. During the period of a day, I may have 50 different scenarios to deal with: there’s you, there’s dealing with a supplier, dealing with property, with a bank. You’re on stage all day long in different roles.”

The most critical role, in terms of Green’s turnaround at BhS and his plans for Arcadia, takes place inside his office. What is the essence of Philip Green the operator? What exactly has enabled him to buy an ailing institution in March 2000 for £200m and (according to his own numbers, at least) report a 202 per cent rise in operating profits to £100m for the year March 2001 to March 2002?

The turnaround meant he could pay a dividend of £175m to the company’s shareholders. Biggest among these is Green himself who owns 94 per cent of the company. The stake brought him a massive £164.5m dividend pay-out, leaving his other shareholders – Tom Hunter, founder of Sports Division, and Robin Saunders, a West LB banker – receiving payments of £8.75m and £1.75m respectively.

Why could Philip Green get BhS moving when Storehouse could not? And how exactly, in such a short space of time, did he manage to get it moving so spectacularly well?

STAYING ALIVE
It’s 11.30 on a Tuesday morning at BhS on Oxford Street. In the window, outsized posters of smiling models wearing “middle market” clothing dominate the shop front. The clothes are fashionable but traditional, safe though not dowdy, the sort of thing that middle-market British women wear. All over the country you see these outfits; at work, at weddings, in the supermarket.

Inside, a large walkway guides shoppers into the heart of the store. Racks are neatly lined with dresses, skirts, and cotton jumpers. Half-price signs show what’s on special offer. Upstairs in the children’s department, t-shirts are piled high, Benetton-style. Not a single item is out of place. Leather-look bags are on sale for £10.99.

In the clean and orderly in-store cafe, grandmothers show holiday snaps to their friends over coffee and cake for £2.55; a retired couple tuck into the jam doughnuts they’ve bought for 99p and got a free cup of tea into the bargain. And all the while the Bee Gees spill out over the speaker system: “Stayin’ alive, stayin’ alive. Ah, ah, ah, ah, stayin’ alive.”

While the shoppers at the tills may not know it, the hand of Philip Green is at work all around them. Of the 5,000 lines sold in BhS, Green sees and approves 85 per cent.

What shoppers see today – the walkways re-introduced after he took over, the numbers on the price tags, which goods are on special offer, which styles are promoted in the window displays, which lines get in-store prominence – is dictated by decisions made by Green and his key lieutenants in marketing and buying. Many of these decisions are made on the fly at his weekly Monday morning meeting.

Green studies the sales figures on hundreds of lines across his 160 stores from the previous week. Womenswear, in particular, gets his attention. It accounts for around a third of overall sales.

What’s done well? What’s not moving fast enough? What can he put on special offer? If a dress is not moving, he doesn’t need reminding what it looks like, what he paid for it, how many he bought, how much he can afford to reduce it by without damaging his margin; it’s all in his head.

People who work closely with Green all comment on his astonishing memory.

“We were at an autumn coat meeting earlier this year,” says Cathy Haydon, assistant merchandise director for womenswear. “We hung up this year’s range and some styles were similar to those sold last year. As we went through the lines Philip would tell us how many we bought and sold of each last year. He’d say: ‘bought 20,000, sold 17,000; bought 15,000, sold 14,000’. Even the merchandiser of the coat department who is very good couldn’t remember that level of detail. It’s phenomenal.”

Romney Drury is marketing director at BhS. Hired from Arcadia by former BhS chief executive Terry Green (not related to Philip), Drury has worked at Debenhams, Arcadia and Mackays, a 400-store Scottish retail chain.

“I’d heard all the rumours [about Philip Green],” she says when quizzed on what she expected when she joined BhS in 2001.

“He was seen as being a bit of a scary character by the rest of the retail trade, but he’s really not turned out that way,” she insists. “He’s inspirational to work for, very straight, you get answers right away and can get on with it. I’m a doer, so for me that’s great. In Arcadia, you’d be waiting weeks and weeks to get a decision.

“On Monday morning he goes through every line of business deciding where we should buy more, where we should look at promoting. He’ll say that he wants to get behind a particular area, we then do a window which reflects that the next week. Promotions can literally be launched in store the next day.”

The major differences between life at Arcadia and BhS, says Drury, is Green’s understanding of his customer; his knowledge of product; that uncanny ability to remember prices and quantities; the speed that decisions are made; and his passion for the business.

“The thing with Philip is you know exactly where he’s going,” she says. “It’s very exciting because of the speed of the whole thing but also because, in the decisions he makes, 99.9 per cent of the time, he’s right. It’s infuriating. We’re all like, ‘oh my God, he’s right again’. He’ll just look at a garment and say, ‘no, that’s not our lady’. He loves the products, he’s got passion and that permeates out to others.”

So, what does Philip Green have that other retailers do not? “Absolute focus,” says BhS chairman Allan Leighton. “He is the memory man of margin, he’s got a great eye for product and he is a merchant, not a retailer.”

BASKET-CASES
Back in his airy office, a tanned-looking Green, in rolled-up shirt sleeves, sitting on one side of the big glass table, launches into how he made a success of BhS: “Shall I tell you how it works?”

He pauses. “Katie!” he shouts to his assistant in the office outside his. “Can we have some coffee?”

Green’s desk, a big, dark-wood affair at one end of the office, is covered with files, paper and a large black phone. Black leather chairs are arranged on cream carpet around the glass table. A stray blue folder marked “Goad Plans, June 2002” lies on the floor. (Goading who? Woolworths?)

Out of the long windows, tree-tops are visible. The traffic rumbles constantly on the Marylebone Road. On one side of the room is a pile of Christmas goods: stuffed toys, photo frames, decorations for the tree. On another a small wooden sign hangs from a drawer knob: “Good morning,” it says. “Let the stress begin.”

Outside in the corridor, people come and go. Phones ring. And Katie organises coffee, lunch and a thousand other things Green needs doing before he heads back to his boat in the Mediterranean, then home to Monaco.

“One of the differences between what I do and what other people do is that lots of entrepreneurs like the deal whereas I’m very involved in running the business,” says Green.

“Everyone thinks all the companies I buy are basket-cases; they’re either badly run, badly managed, run-down businesses, right? And hopefully they have got cash-flow and assets. And then it’s a question of reinventing and reinvigorating those businesses to get them into a turnaround scenario.

“The thing that people outside don’t understand is that I buy companies employing thousands of people – Sears employs 29,000 and BhS up to 18,000 – blind. I’d never been into the BhS head office before I bought it; I went to two BhS stores. And later when you’ve turned it around you read all the stuff about how you stole the company from the shareholders! No-one understands the risks you take going in.”

How then does he make his judgment about what to pay and whether to go in? “You identify through experience,” he says. BhS had some critical ingredients even as a failing business: an established brand; 160 stores in prime shopping locations; a store size that’s rare on the high street and in shopping centres; loyal customers; and a recent £100m investment in IT and logistics.

“And clearly looking at the stores, they had the wrong product for the marketplace they were attacking. Then you look at the financials. My base case for every company I ever look at is: do I think I can lose any money? That is my base case. What if it went wrong? And we tip it upside down and say: what is our strategy if it goes wrong?”

In the case of BhS, given that Green paid £200m for a business with net assets of £450-£500m – much of that in property – his doomsday scenario would have meant selling off enough stores to get back his original investment. In the event that proved unnecessary.

“We split the business into two separate parts – product and non-product – and strip it down,” he says. “We look at every single aspect of non-product – electricity supply, gas supply, cars, property – and every single aspect of product and look at those areas where we can be more efficient.”

Reports of cutting investment in the business are incorrect, says Green. “There is a fundamental difference between cost-cutting and being efficient,” he insists. Once inside BhS, the finance director told him that the business was owed £2m in fines from suppliers as penalties paid for late supply.

“I said: ‘Really. And how much does that cost you?’ I called one supplier and asked how much he put on the price of goods to cover for potential fines. He said 1.5 per cent. So I phoned half a dozen suppliers and asked, ‘what’s the extra cost for fines?’ The following Monday we wrote to every supplier and told them we were taking 1.5 per cent off all their invoices as there would be no more fines.”

Martin Whitehead has worked at BhS for 30 years and is now supply chain director. “Under Philip the product hasn’t changed dramatically in fashion pitch. What’s changed is its quality, its manufacture, the margins we negotiate, the speed to market.

“He works in the divisions, he works the building. In the first six months he was regularly here till 1am and 2am. Lots of suppliers we’re now using are people previously not known to BhS. It’s a different supplier base but he didn’t just change people for the sake of it. He said, ‘I can do it for this. Can you match it’?”

Whitehead has worked under ten different chief executives at BhS. To him, the critical factor in the financial turnaround is the margins that Green agrees with suppliers. “In the old days if we got 0.2 per cent margin improvement, we’d think we were moving the earth. In two years, Philip has improved the margin by eight to nine points.”

Watching Green tour the basement of BhS where new product is stored, it’s easy to understand Allan Leighton’s assessment of him as a “merchant.”

“What do you think of that as an item?” he asks, reaching for what looks like a Christmas doll. “Now, on my eye... and I’ve never seen that in my life...what do you think that would be great value at? Eh?”

Maybe £12.99?

“I wanna sell that at £10,” he says. “I’ve never sold it before. Most retailers say, ‘what’s the cost?’ and that’s the starting point of what they sell it for. I don’t allow that. I work the other way and say, ‘what can we sell that for’?

“I don’t discuss what it costs. In my head I’ve got a picture: do I think that’s great value for £10, available in eight colours? Yes, I do. Now it becomes a question of what am I buying it for. And my risk assessment is in what I’m paying for it. Does that make sense? The thing is to have a good eye.”

Green’s style of doing business does not work for everyone. Whitehead says only about 25 per cent of head office staff in the business today were with BhS when Green took over. And around 40 per cent of the supply chain has changed. Are people who work for Green scared of the man? Yes, some of them are. But the more robust, those who can defend themselves, believe he has made BhS thrive in a way countless other managers could not. He has re-energised its people, its product and its way of operating, driving out bureaucracy and replacing it with a focus on the customer and product.

“In the past, three-quarters of people’s time was spent on process; now three-quarters of their time is spent on product,” he says.

“They could walk in here now and say, ‘we’ve got 8,000 of those’,” he says, pointing to a candle-holder on the table. “I’ll then make a decision: buy, sell or swap.”

So what of the future? BhS will stay private, says Green. It’s a family business now and one he wants to pass on to his two children, now 10 and 11.

As for the challenge at Arcadia: “We’re relaxed. It’s a bit of history really, isn’t it? It’s gonna be about getting everyone focused. If you’re focused and you home in on the things that matter, you can get a lot done in six or seven hours of each day.”

And Green himself, how does he think he turns around businesses where others have failed? “I don’t think I’ve got anything special. I think I am just 1,000 per cent focused on getting it right.”

Amanda Hall is a business journalist and profile-writer. She writes the weekly lead profile for the Sunday Times.

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