A year after acquiring designer mini-chain Cruise, John Heath is quietly contemplating his next move.
When former USC director John Heath teamed up with private equity firm Arev to pounce on designer mini-chain Cruise 12 months ago, he really set the cat among the pigeons. The tension in the independent community was palpable and indies up and down the country waited with bated breath to hear whether Heath and his slick designer emporium would be coming to their town. Meanwhile, suppliers sweated about terms, distribution issues and Cruise’s potential market dominance.
But the typical private equity-fuelled 50-store roll-out never materialised and, apart from a deal to rescue Midlands mini-chain Limeys in June, year one has passed by in Heath’s typical low-key style. So what possessed a man who once led Next’s retail team to chase the independent dream?
Heath had already picked up the indie bug when he took the “riskiest decision” of his career in 1995 and joined the then nine-store USC from Next. His experience building the business with USC founders David Douglas and Angus Morrison seem to have been instrumental in shaping his choices.
Heath says Cruise was an opportunity in a difficult sector when the middle market was becoming more promotion driven. This was his reason for leaving USC in 2005, just over a year after it was bought by Sir Tom Hunter. “That part of the market did not appeal to me, but I felt there would always be a requirement for something different on the high street,” he explains. “Shoppers that spend £1,000 on a dress one week aren’t suddenly going to switch to Primark the next.
“There are definitely shoppers that want a great environment, the best brands and the best service and I don’t think that will ever change. Cruise was the best out there at doing those things. I’d known the business for 20 years and I’d always admired it. The staff impressed me more than anything – I’ve worked in retail for 35 years and Cruise’s staff are the best I’ve known. I wanted to capture that and take it to different locations. When I left USC I didn’t want to just get a job. I really wanted to do something I wanted to do.”
Pursuing his ambition, Heath approached Cruise finance director Ian Baird, whom he had worked with previously at USC, about a potential deal. Baird set up a meeting with Cruise founder Jim Gibson, and while Gibson was a reluctant seller he told Heath to see what he could pull together.
What followed was an eight-month saga to buy the business, which began with Heath trawling financial institutions, banks and private equity firms looking for backing. Heath says it wasn’t easy. “With the market place being tough, it can be difficult to get backing in place,” he says.
However, after meeting John Eales, director of Arev, which also owns Hardy Amies, Ghost and Jones Bootmaker, Heath knew he had found his man. “It wasn’t just about the numbers. Arev was interested in what we could do with Cruise and where we could take it. The directors were very supportive,” he says.
Although Arev sources admit the deal was risky, given that Cruise was so small and was losing founder Jim Gibson, they saw a spark in Heath. The deal was sealed in September 2006 for a rumoured £7 million. Arev also saw an opportunity to deploy Heath’s skills across its portfolio on projects such as the first Hardy Amies retail store in Edinburgh.
Heath quickly set about strengthening Cruise’s management team, drafting in Martyn Lacey from USC as buying and merchandising director and Stuart Margetts, also from USC, as retail operations director. Heath’s pal and former joint chief executive at USC Stephen Craig also invested in Cruise and took on a non-executive role. The team joined Baird and existing business development and marketing boss Robert Young, who Heath says “lives and breathes the brand”.
During the first year since the buyout, Heath says retail operations have been tightened up and more structure brought to the business. The team has scouted for new locations as well as pulling off the Limeys rescue deal and integration of six Limeys stores. Heath also led a campaign to settle supplier nerves, which he says is paying off “because we’ve proved we can deliver our promises”.
Cruise has opened accessories stores in Chester and Aberdeen and Hugo Boss franchises in Aberdeen and Newcastle upon Tyne in the past eight months. Heath also closed the women’s jeans store in Newcastle, where Cruise had three shops. Three more Cruise shops are planned, in Belfast, Leicester and Bristol. “After that we’ll take a breath,” Heath says. “We’ve had a busy year, so after Christmas we’ll reassess things in February.”
However, Heath is sensitive to speculation that he is preparing a private equity-fuelled attack on the UK independent market through huge growth, but admits he has had several phone calls from concerned indies that are located close to new openings.
“I’m not looking to do 200 stores or anything like that and there’s never going to be a situation where I start opening 20 shops at once,” Heath laughs. “It’s likely to be a couple of stores a year for the next few years. I’m not thinking ‘I’m going to blow that indie out of the market’. Even if I wanted to I couldn’t – you can’t just get brand distribution. Brands are loyal to their retailers.”
However, he admits the acquisition of Limeys this year was partly fuelled by a need for brand distribution in key Midlands cities such as Leicester, Nottingham and Derby.
Limeys joins the stable
The demise of Limeys was brought about after it relocated its Nottingham site to a huge off-pitch unit in Wheeler Gate, where sales subsequently slipped. It also failed to offload its original site in Bridlesmith Gate and was hammered by double rent payments.
At the end of the month the original Bridlesmith Gate store will be reincarnated as Cruise. The rest of the Limeys stores, in Derby, Sheffield, Birmingham and Leicester, will continue to trade as Limeys, but will be rebranded to Cruise when they come up for refit or relocation.
But Heath is keen to stress that Limeys was a one-off deal and says there is unlikely to be other independent acquisitions. Instead, growth will be gradual – he aims to open new stores where there are gaps in the existing independent retail offers, insisting Cruise can operate in harmony with other indies.
“We take a look at markets and who is operating there and react to opportunities. In Chester, for instance, local indie Tessuti does well, so we thought that rather than taking it on we’d open an accessories shop instead.”
It is a similar story in Aberdeen. Heath is adamant the new accessories shop will boost spend for other independents because it will lure back locals who historically have had to travel more than 100 miles to Glasgow or Edinburgh to buy luxury footwear and bags.
Heath explains that while Cruise trades under one name, its multi-faceted approach incorporates its mainline, jeans, accessories and franchise formats, which will enable it to expand beyond its Scottish and north-west heartland without encroaching on existing successful independents.
Property sources say landlords are falling over themselves to give Heath favourable terms in new developments. “Landlords see Cruise as a key store to help them avoid the clone town label,” says one agent.
Heath jokes that terms could be more favourable still and does not seem overly tempted by the property opportunities, pointing again to distribution issues. “I can’t open in markets such as Manchester, which has Flannels, Selfridges and Harvey Nichols,” he says. “I can’t open in Leeds or Liverpool either because distribution is sewn up.”
But distribution is not always Heath’s most important consideration. He took a huge risk in Chester, opening an accessories standalone without crucial handbag brand Prada. But the risk has paid off, with sales 45% ahead of target since it opened in April. Similarly, he certainly isn’t shy of taking on retail’s big guns. The planned store in Bristol will be adjacent to Harvey Nichols – a bold move given its cachet in the designer market. He is also unfazed by the prospect of the premium repositioning of House of Fraser, which will see it move closer to Cruise’s product offer.
“People who like to shop in department stores are different to those that shop in Cruise. Some people want to walk into a store and find all the brands laid out next to each other in departments. Others want service and a great environment as well as the best brands,” he says.
Sceptics argue that as Cruise grows, steadily or not, it will inevitably lose its independent feel and therefore a critical factor in its success. But despite already reaching 18 stores, Heath insists Cruise ought never to be talked about as a multiple. He will not be drawn on his definition of a multiple or a multiple store count.
So far, Heath’s commitment to independent values has paid off: top service, good product and unique store environments such as the use of the crypt at the back of the Chester store. But Arev will be expecting to see a healthy return on its investment, which can only come about through sustained growth. The task is not impossible – the likes of Russell & Bromley and Joseph have become powerhouses in their sectors but retain independent status in the eyes of the consumer.
Heath insists there is no exit strategy in place, and will only say: “There is a very strong management team below me. I’m proud of what we have achieved so far. We’re not just a white box stacked up with jumpers and that’s really what sets us apart.”