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Steven Cohen

Mr Byrite may have been the butt of jokes in the 1990s, but out of its ashes grew Blue Inc, whose managing director is having the last laugh with growing sales and expansion plans.

Standing in the entrance of Blue Inc’s store in Harrow, Middlesex, a navy blue T-shirt with a bold slogan catches the eye. Emblazoned across the chest are the words “I’m not a gynaecologist, but I’ll have a look.” Similar laddish idioms feature on garments throughout the store.
The Harrow store boasts one of the chain’s new “urban concept” shopfits and its graffiti- clad walls celebrating street culture give the environment a macho vibe.

This is the new Blue Inc, targeting young and trendy British males. The message is worlds away from the retailer’s almost century-long heritage. For once upon a time Blue Inc was Mr Byrite – the Skoda of the high street in stand-up comedian terms, but still a landmark in men’s value retailing.

Blue Inc was founded on the roots of the famed 1990s discounter, dreamt up by Mr Byrite’s owners, the Levy family, whose retail lineage stretches back to 1912 when A Levy & Son opened a hat shop in Stratford, east London.
A chain of haberdashery stores was established, which eventually evolved into Mr Byrite. The name disappeared a decade ago when the three sons of its owner Barry Levy – Jonathan, Robert and Daniel – took control of the operation and ditched the discount image in favour of the Blue Inc name and a new brand-led offer.

The first Blue Inc store opened in 1998 and, after eight years of trading, the family sold the business to an investment consortium led by former banker Steven Cohen.

Cohen began his career as a corporate finance executive at investment bank SG Hambros and moved into retail as chief executive of First Sport in 2004. After leaving the company in 2005 he and two fellow investors, clothing suppliers Hezi Yechiel and Miraj Khan, formed acquisition vehicle Marlow Retail and began to scour the market for a retail business.

The criteria was clear, says Cohen. “We wanted a business with a profitable framework. Blue Inc wasn’t moving fast, but it was well invested. It had solid foundations and people who had worked there for 30-plus years. It had a long heritage, was not making a loss and had strong company covenants.”

Cohen’s consortium bought Blue Inc for a price rumoured to have been between £5 million and £10m. He will still not reveal the final cost and says only that it was a 28-store operation, which he and his team have grown in the past 18 months to 56 stores, together with a new transactional website.

The retailer is continuing with its ambitious expansion programme. Cohen aims to have 68 stores by the end of this year and 80 by 2010. Currently the core of the business is based in the south of England, with 12 stores in east London and Essex, another 10 in north London, Hertfordshire and East Anglia, nine more spanning south London, Surrey, Sussex and Kent, and 11 in west London and Middlesex.

There are just eight stores in the Midlands and just six in the north of England. Cohen says he is looking to expand further north and is scouting for locations in Sheffield and Leeds. In total, Blue Inc has 20 stores based on high streets, 34 in shopping centres and two in out-of-town developments.

Although the retailer’s rapid expansion adheres to the pattern followed by most privately financed deals, an important question must be asked. As the UK apparently hurtles towards an anticipated economic crisis, is now the best time to be opening so many stores at such a pace?
Cohen says he is not biting his nails on this one just yet. He maintains that his finance background has helped him to decide when to expand and when to pull back.

“Being an ex-banker, I have put a lot of effort into numbers. All of our expansion is carefully modelled and supported by attractive deals with landlords who want footfall from the youths that shop with us coming into their schemes,” he says.

But these are not easy times for trading and it is well known that retailers across the value end of the young fashion market are feeling the pinch and the likes of Primark and the supermarkets are upping their fashion credentials.

Blue Inc’s competitors – discount young fashion chain D2 and The Officers Club – have both come up against the toughening climate and posted losses last year. In contrast, Cohen is bullish about the prospects for Blue Inc. Total sales for the year to December 31 2008 are forecast to be £37m, up from £27m in 2007. Blue Inc made a nominal profit when the business was bought in 2006 and Cohen is currently projecting that profits will hit £1.3m by December this year.

The Officers Club chief executive Dave Charlton has a realistic perspective on cur-rent market conditions and Blue Inc’s chances of success. He says that for those operating in the value sector but trading just above the discount giants, the market is tough. “We occupy a similar space to Blue Inc. They are smaller than us but that is not necessarily a disadvantage; sometimes it means you are more nimble on your feet,” he says.
“Looking at the Blue Inc stores, they have made an improvement, but whether they are seeing an improvement [in sales], I am not sure. Like us they had to change their offer and product to find a different place in the market in the face of the competition. However, they have brought in a new senior buyer who is making a difference.”

Charlton is referring to Stephen Galea, Blue Inc’s new buying director. When Cohen bought Blue Inc he caused a bit of a stir by tempting Galea away from his role heading up formalwear buying at Topman to join him at Blue Inc.

Cohen charged Galea with repositioning the retailer and he has upped the trend levels at the chain, although crucially he has remained mindful of the retailer’s value market positioning. Galea explains: “We sell the latest skinny jeans and we sell cardigans,” he says. “Trend is not something we shy away from. It’s just that we have to be careful how we allocate it.”

Blue Inc offers seven fashion product categories, with T-shirts and shirts making up the bulk of the retailer’s sales at 23% of total purchases. Knitwear follows, accounting for 20% of sales, and denim takes third place with 17%.

Head of merchandising Tim Lyall has been with the business for 38 years and has noticed a change in the company’s culture since the buyout and Galea’s arrival. “It has been an interesting transition,” he says. “Mr Byrite was once the butt of people’s jokes. We can be much bolder now. Since Stephen has come on board, if we fancy something product-wise we go for it, and there have been very few occasions when this hasn’t worked.”
Despite Blue Inc having a largely branded offer upon its acquisition, Galea has moved the retailer away from that approach towards own label, and now its three own labels, Industrialize, Gymlocker and Naked, make up 80% of Blue Inc’s sales.

Despite the apparent success of lower-priced but higher-margin own label, Cohen seems reluctant to admit that the retailer offers a value proposition. “Primark prices we avoid like the plague,” he says.

However, the product at Blue Inc – the entry price for a T-shirt is £5 – has a value sector feel, which should mean that the business is reasonably well placed to gain market share in the face of the credit crunch.

“Our shoppers are very young,” says Cohen. “The target range is between 13 and 29 years old. A lot of our customers are in their late teens and students. I wouldn’t say they are immune from the credit crunch, but they are less affected. The guys live at home longer and therefore the disposable income is likely to be higher.”

With the business being owned by a consortium of investors, Cohen has a three- to five-year exit from Blue Inc in mind. However, he comes across as being in no rush to sell it on and seems to have grown rather attached to the business. He even has plans to roll out the female equivalent of Blue Inc, the aptly named Pink Inc, and is currently looking for a new head of womenswear buying to drive the move.
The retailer will initially parachute the women’s offer into eight stores (although how the product will fare in what is a very all-male store environment remains to be seen), and may look to open standalone stores in the future.

Although the question has not yet been posed to Cohen, he is keen to stress how committed he is to the business and, unprompted, says: “We’re not looking to sell the business. Every private equity-type environment has a three- to five-year window. We’re two years in and thoroughly enjoying it. At the right time it might be considered, but we are excited about what we are doing and we think we’ve got something unique. We are cash-generative. We don’t need to sell and we’re growing something that excites us.” But, he adds tentatively: “Everything has its price.”
Cohen’s present focus, it seems, is not on finding a buyer but on trading the business. He says he will continue to refurbish Blue Inc’s stores and to open new outlets to drive higher sales.

Sales have been boosted by a new shopfit designed by design consultancy Deluxe Vision. The concept is costing Cohen on average £50 per sq foot, but the average transaction value in refurbished stores is £27 against £22 in locations that still have the older look.
The next big move for the retailer – opening a flagship store on London’s Oxford Street – will boost its profile further. The business is planning to up its game in the design stakes, hiring design agency Dalziel & Pow to develop a new concept for its flagship. The unit is currently undergoing refurbishment, but will open in September this year.

With Middle Eastern franchise plans on the horizon, the international brand message is pivotal, and where better to showcase the new and improved Blue Inc than on Oxford Street?

A confident Cohen says: “Mr Byrite used to have two shops on Oxford Street in the 1980s. Now, as Blue Inc, we are back. We needed the brand to be ready before relaunching, and now we are seen as a sizeable player. We have the critical mass to take us to the next level.”


Q&A

Who do you most admire in the fashion business?
I think the Lewis family at River Island have done an outstanding job of developing new store concepts and innovative product design, as well as maintaining a clear vision for their business in a competitive marketplace.

What would be your dream job (apart from your current position)?
If I hadn’t entered the world of retail I would probably still be working in the City. However, the buzz and challenge of building a retail brand – and acquiring underpotentialised businesses and seeing them grow – make this career far more rewarding.

How do you think the menswear landscape will change over the next three years?
Product differentiation will be key, [which is why] we have invested heavily in our buying and design team. In addition, in-store visual merchandise and store standards will continue to be crucial.

What is it about working in your part of the market that you enjoy?
Our sector is incredibly fast paced, with full product turnaround every eight to 10 weeks. Co-ordinating new window themes and capturing the brand essence of a brand is also great.

Which is your favourite retailer?
Replay in Barcelona. It has superb visual merchandising standards and very creative use of wall fabrics.

What is your proudest achievement in terms of your career?
Assembling the great team that I have around me at Blue Inc. I am very excited about the next two years at the business.

What has been the biggest work-related challenge you have faced?
Building confidence and preparing for change in a business founded almost a century ago, in 1912.


CV

2006 Managing director, Blue Inc
2006 Led acquisition of A Levy & Son (trading as Blue Inc)
2005 Founded acquisition vehicle Marlow Retail
2004 Chief executive, First Sports Group
2000 Investment banker, Hambros Corporate Finance
1992 Graduated with a geography degree from Cambridge University

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