Office’s chief executive, who turned his back on private equity to trade in high heels and sneakers, figured out a formula for UK success and now has plans to take the footwear retailer global
There aren’t many former finance directors or private equity bosses who find themselves as chief executive of a sub-£22m big-personality retail business, where the staff nickname them “Britney” (as in Spears) and trades are done in super-stiletto platforms and rainbow-coloured Converse rather than in debt.
But that is Brian McCluskey’s lot. He joined footwear chain Office in 2003, shortly after entrepreneur Sir Tom Hunter’s West Coast Capital bought the business from its founder David Casey for £15m. At the time, McCluskey was director of retail acquisitions at West Coast Capital, having first worked with Hunter as finance director at his Sports Division chain in the mid-1990s.
Since his arrival the business has been through some ups and downs, and there was a period three years ago when suppliers and rivals complained it had lost its quirky personality. An almost six-month-long buy-one-get-one-free offer in 2007 also didn’t endear McCluskey to the trade, but it cleared stock and got Office back on track with a new strategy.
Under McCluskey’s tenure, sales have grown to about £130m and the store count has gone from about 20 to 115, including 17 recently opened concessions in House of Fraser. A walk around the company’s headquarters in east London, where McCluskey joins in with all the staff jokes, shows he has managed to retain the unique democratic culture initially fostered by co-founder Richard Wharton, who left in 2006.
“Even though Office’s turnover is in the region of £130m now, the business operates with the same essence and values it had when it turned over £22m,” says McCluskey. “We shun all forms of corporate hierarchy.”
Although he acknowledges there were some high-profile departures from the business following the West Coast Capital takeover – in addition to Wharton, buying director Lynsey Hand also left – he points out that the core creative staff at Office are all long-serving members of the team. Men’s and sports buying director Ghassan Hodieb has been at the business for 15 years and women’s buying director Jane Drysdale for more than a decade.
Says McCluskey: “I don’t feel the need to tell Ghassan and Jane what to do – they have the final say. You could take the board out of the business and it would run for six months with no hiccups, it is so well grooved.”
After a period chasing prices in China, when footwear specialists panicked at the onslaught of fashion chains like New Look entering the market, McCluskey switched strategy to focus on product design, sometimes at the expense of margin, to secure a point of difference. It paid off. Rivals Faith, Stylo and Shoe Studio all fell foul of the poor trading climate and increased competition in the past year, while Office’s like-for-like sales have risen 11% for the year to date. EBITDA will hit £13m this year versus last year’s £7m profit.
McCluskey says: “We pushed into China to look for high intake margins like everyone else but we’ve turned away from that. A business is not just about costs, it’s about product, certain styles, quality, styling and competitive prices. Our product is the best on the high street at our price points.
“Kurt Geiger’s margins are probably above 60% whereas we will have some margin in the low 50s. If it’s a beautiful shoe then we will still take it but we have to stick to our price points.
“There is price inflation out there. You can’t just suck a 7% increase in the cost base, but we can’t raise prices across the board. We’ve got to be competitive.”
Sports styles, which make up about 33% of Office’s business, have contributed significantly to this year’s performance, running 24% up on a like-for- like basis. “We’re one of the biggest stockists of Converse in Europe,” notes McCluskey. “JD Sports has the sports market sewn up but you come to us if you want a huge choice of colours in key brands like Converse and Vans. We have exclusive SMUs with these brands.”
Women’s sales make up about 55% of the total while the remaining 12% come from men’s. Surprisingly, 45% of the total offer is branded, though this largely comes from the sports business.
Office’s success has led to its first foray overseas, with the opening of a concession in Sir Philip Green’s much-lauded Topshop New York store in April, which has proved to be a winning idea. A further push overseas into markets that like kooky British fashion would seem the obvious next step for the business. About 5% of its website sales – which this year are due to hit £14m, three times the size of Office’s largest store – come from international markets.
But exporting a footwear chain brings its own challenges, says McCluskey. “Supply chain is a nightmare. Every single delivery to the US has been held up by customs for a week. You could ship £600 worth of clothing in the space it takes to ship a £70 pair of shoes. But I know I could sell a lot of product at a profit overseas.”
Expansion in the UK is also on McCluskey’s agenda, particularly as there are some good property deals to be done. He says: “[Retail consultants] Javelin identified more than 300 locations where Office could go in the UK. We could probably double the number of stores from 75. We’re opening in Lakeside [Essex], Solihull, Manchester,London Oxford Street, St Albans, Topshop in Liverpool and House of Fraser in Cardiff.”
McCluskey won’t be drawn on the impact of the banking crisis on the debt-burdened West Coast Capital, and any effect it could have on Office, but it is clear the footwear business is the private equity firm’s best-performing asset.
McCluskey says: “There is less being spent but there is still money to spend. In every recession businesses survive and thrive. We’re in a massive position to benefit when the market recovers.”
Who in fashion do you most admire?Ray Kelvin, [founder of] Ted Baker. The man “closest to Ted” continues to produce great product year after year, but what really inspires me about Ray is his love of the product and his obsessive attention to detail. Ray has always preached “get everything else right in your business and the profit will take care of itself.” I always try to remember this. He once gave me a book called Let My People Go Surfing [by Patagonia founder Yvon Chouinard] which is recommended reading for anyone trying to create more than just a successful company.
Which is your favourite store? Outside of our own, the most progressive and original multiple in the UK right now is All Saints. The whole package sits so well together. Its clothing designs set the trend on the high street. The product is perfectly complemented by the store design, cool music and great staff.
What is the best-selling product you have ever worked on? This summer was great for us. Our best-selling sandal sold more than 80,000 pairs. Last winter our best boot sold more than 55,000 pairs.
What has been your proudest moment? Office is the greatest place I have ever worked. Every single day here is the proudest moment of my career.
What would you be doing if you weren’t in fashion? I would love to say sailing around the world with my girlfriend, but I would still be in private equity. It can be a very frustrating business at times but there is immense satisfaction in completing a good deal.
2003 Chief executive, Office
1999 Director of retail acquisitions, West Coast Capital
1995 Finance director, Sports Division
1989 Finance director, Jeyes UK
1986 Various financial roles
1986 Chartered accountant