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Fayre bet

Shoefayre nearly bit the dust 18 months ago and has now been put up for sale by owner The Co-operative Group. Laura Weir meets managing director Simon Palmer to examine the retailer's rescue plan

The businesses of funerals and footwear are not usually linked, unless you're talking about Shoefayre. The 200-store value footwear multiple is commercial stablemates with a veritable smorgasbord of businesses. Alongside funeral parlours and fruit and veg stores, Shoefayre falls under the Co-operative Group umbrella, which turns over £7 billion annually.

Shoefayre represents less than 1% of that turnover, making sales of £61.7 million a year, and is the Co-op's only dalliance with the fashion and footwear sector.

A thorn in the group's side for the past three years, the company is now halfway through a turnaround plan, with the Co-op looking to exit the business. Several sources say that since Shoefayre has been on the market, its management has approached some of the best-known names in the footwear sector to try to offload the fascia. As Drapers went to press, the management team was understood to have narrowed potential takers down to two trade buyers.

But Shoefayre managing director Simon Palmer remains tight-lipped when quizzed about the potential sale, choosing to say only a few words. "We are one of the most unintegrated businesses in the Co-op portfolio. We are very different to the other businesses in the stable," he explains.

One industry source who has taken a look at the business says there were things about it that did not appeal. "The business is so huge and the sheer scale of it means there would be so much work to do. It's not for me," he says.

Unsurprisingly, Palmer does not share this opinion. He sees Shoefayre as a very viable business, and his bullish attitude in the trade has stoked rumours of a potential management buyout. "We are ahead of where we expected to be in terms of delivering the recovery plan and ahead of target financially," he says. "We made an operating loss of £5m in 2006 and by the end of this year we will have reduced that to £2m. In 2008 we plan to be back in the black and I'm confident that we can do that."

Shoefayre began to lose its way at the turn of the millennium, following the departure of founder John Mynard in 1999. After he left, a commercially misguided big-box retail strategy was introduced.

The property portfolio, along with the head office, started to look shabby, leading to Shoefayre's lowest point from 2004 to 2005 when the company reported losses of £8m. If the chain had not had the muscle of the Co-op Group behind it, Shoefayre would have certainly been laid to rest. However, the Co-op would not let the business die and pledged to invest £10m over three years to bail it out.

Palmer says the product also failed to evolve in line with the changing value footwear landscape, which was becoming increasingly fashion oriented. "We didn't react properly to the industry," he adds.

The strategy to stem haemorrhaging profits was devised by Lyle Findlay, the Shoefayre chief executive who recently left for TK Maxx to become its UK head of retail. Since Findlay's departure, former finance, logistics and IT director Simon Palmer has taken the helm and is now three months into the job. "I will probably be a little bit more hands on than Lyle, but not in a controlling way," he says.

It seems Palmer's appointment was a matter of fate, if you believe in that kind of thing. His former secondary school is just 500 yards away from the Shoefayre HQ in Wigston, Leicester, and his father spent 17 years as boss of City Leather, a local shoe component manufacturer that worked with footwear suppliers Equity, Lotus and Fiona Footwear. It is this footwear background that Palmer says will help him to turn around Shoefayre.

The first half of the recovery plan began with the restructuring of Shoefayre's head office, where 50 jobs have been cut in the past 18 months. Barry Marchant was then drafted in from his role as head of operations for specialist retail in Co-op's optical retail arm to become Shoefayre head of retail operations.

Marchant's first task was to close unprofitable stores, shutting 55 between January 2006 and April 2007. Some Shoefayre stores were also relocated. But the mission now is to target new openings in secondary locations, mostly in market towns.

Marchant also closed 14 concessions when Shoefayre exited the Co-op's department stores in October 2005. This move left Shoefayre with a portfolio of 200 standalone stores and 50 concessions in other Co-op stores.

All of Shoefayre's stores are scheduled for a facelift over the next two years, which will include a new company logo. Small but important changes will take place in store, particularly in terms of merchandising. Rather than single shoes, more pairs will be displayed, and the branded offer will be increased. The branded side of the business, which includes Clarks and Country Jacks, currently accounts for about 9% of Shoefayre's sales, and management anticipate this will grow to 11% within the next 18 months.

On his plans to turn the business around, Palmer is bullish. "We are alive and kicking and intend to stay that way. I believe it is a very sustainable business," he explains. He is also confident he can take on the competition. "In my opinion we differentiate from Shoe Zone and Priceless in that we have a very good unit price, offering quality, freshness and fashion," he adds.

In what was a coup for the company, Savina Barnes recently joined as head of buying and merchandising from value fashion specialist Primark, where she was senior buyer. Under her watch, Shoefayre's trend-led product has been much improved.

On inspection, the quality of Barnes' new product is also better, and a version of the typical value coloured flat pump is, according to Barnes, the retailer's top seller at £8. Faux animal skin ballet pumps and stripy T-bar canvas sandals are also set to be sure-fire hits if they are priced and merchandised correctly, and the men's offer is dramatically different to that previously found on Shoefayre's shelves, with more on-trend and younger-looking styles.

The retailer prides itself on offering footwear from the cradle to the grave, although one footwear industry source believes this could be an Achilles heel for the business. "Shoefayre needs to try to carve out a niche for itself, especially in the over-saturated cheaper end of the footwear market. New Look does so well on shoes because it knows its customer inside out. That is its strength," he says.

Barnes tells Drapers that women's footwear, which accounts for 42% of Shoefayre's turnover, is the category in which she feels she has made the biggest improvement in the shortest time. "I really needed to improve the product and not neglect it," she adds. She has hired three trainee buyers and two merchandisers to grow the team, and is vocal about how committed she is to changing customer perception of Shoefayre. "In the past you could get any shoe at Shoefayre, as long as it was in black. That will change," she laughs.

Since Barnes' arrival, the business claims that sell-throughs have "generally improved", with some key volume lines achieving sell-throughs of more than 80% before markdown.

The one area that remains under review is the supply base. Shoefayre sells 12 brands in its women's category, including Rieker and Hotter Comfort Concept, and its management gives the impression that both brands and sourcing arrangements are ripe for change. The chain's own-label sourcing is done through third parties in the Middle East and China, although it is looking at direct sourcing in the future.

At the moment, 1% of the firm's sourcing is direct, as the group "dips its toe in the water", says Barnes. However, there are plans to increase this in a bid to achieve better margins as the recovery continues.

Men's footwear, which has always been a strong staple for the business, also looks much improved. On-trend casual trainers, long last lace-ups, vulcanised pumps and canvas flip-flops were not dissimilar to those found in River Island this summer, and even Shoefayre's own staff are embracing the freshness of the offer. "Unless I made them do it, my team wouldn't have worn our men's product before. Since Savina has come in they're actually picking shoes off the shelves and wearing them by choice," says Marchant.

Barnes adds: "The product is not dissimilar to what you would see among the high street's young fashion retailers. We cannot suddenly say we are high fashion overnight, but we are getting there."

Next on the agenda is to execute the second half of the three-year recovery plan, which Palmer hopes will build on the radical changes that have already taken place and boost the market perception of the business.

Raising the chain's profile may prick the ears of some potential buyers, but Palmer refuses to be drawn on the possible outcome for Shoefayre. "In 2005, the Co-op decided to put the business on the road to recovery, and we are focused on that," he says.

SIMON PALMER: THE CV

2006-present Head of finance, logistics and IT, rising to managing director, Shoefayre

2003-05 Finance and IT director, Samworth Brothers

1999-2003 Senior financial controller, Express

1996-98 Finance, administration and IT director, Corporate Services Group

1993-95 Management accountant, Sears

1986-92 Assistant financial accountant, British Gas.

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