The chief executive of Cruise is using his turnaround expertise to take the designer mini-chain back to its luxury roots and grow sales with more exclusive brands, better supplier terms and a greater focus on etail
When James Pow walked into one of Cruise’s Glasgow stores last year, shortly after taking up the role of chief executive of the designer mini-chain, he asked staff: “What’s the difference between Cruise stores and TK Maxx, other than the prices?”
He couldn’t get a satisfactory answer, so he set about drafting in more exclusive brands, renegotiating terms with suppliers, refitting stores, dropping prices and cutting discounting in a bid to make the troubled retailer “less high street” and give it a clearer focus to replicate, as he describes it, “the success it had under [founder] Jim Gibson”.
With a background in design and buying, Pow made his name as a turnaround specialist. He has previously been involved in growing luxury brands including Mulberry and Hackett. He was drafted in as non-executive chairman of Cruise by the chain’s banks in May to support the business through a pre-pack administration, which was led by then managing director John Heath and former finance director Iain Baird.
The pre-pack administration came about after the business found itself with severe cash flow difficulties following the collapse of the Icelandic banking system in 2008, which Heath blamed for the pre-pack situation.
Heath and Baird had initially bought the mini-chain from Gibson in 2006 for about £7m, backed by Icelandic investment firm Kcaj. With the collapse of the Icelandic economy, finance for Cruise via Kcaj suddenly dried up, but the pre-pack process enabled it to shed stores and costs and re-emerge at the other side.
When the banks asked Pow to take the chief executive’s role in October, following the sudden departure of Heath and Baird, he stepped in with a bullish agenda.
Separately, buying director Martin Lacey resigned in February and Pow is recruiting externally for a replacement.
The departure of three hands-on directors has concerned some of Cruise’s suppliers. The managing director of one premium label says: “Martin was the last piece of continuity at Cruise so his departure is worrying.”
However, Pow says a management shake-up brings opportunity.
“Cruise struggled because it grew too fast and went too high street,” he says.
He says he has visited all suppliers in the past few weeks and in almost all cases has renegotiated payment terms for autumn 10, having previously been restricted to upfront payments by most suppliers since the administration.
While some remain cautious following the management shake-up, Pow says most have been supportive of the changes he’s made. “The biggest brands said to me: ‘If you hadn’t come into the business we wouldn’t be supplying Cruise now’,” he says.
Delivery terms have also changed, with Pow demanding more frequent and reliable drops. “There was no newness in store because Cruise had been accepting delivery windows of four months from the big fashion houses and orders often came at the end of that window, which was too late in the season and left them with massive stock piles,” he says.
Pow says he now knows exactly when each delivery will arrive. “We’re buying in capsule drops now so we have constant newness and customers know that when it’s gone, it’s gone,” he says. “That’s the only way a luxury business can survive in this market.”
Cruise, which was founded in 1984, appears to have retained some goodwill among suppliers in spite of the departure of the well-liked Heath. Suppliers contacted by Drapers say they are backing Pow to succeed.
However, this seems in part to be driven by the general turmoil in the designer retailer sector and the general lack of potential wholesale partners. Cruise’s nearest rival, Manchester-based mini-chain Flannels, itself went through a CVA process last year, shutting several of its stores.
Ben Banks, director of agency Four Marketing, which supplies Cruise with brands including Evisu and CP Company, says: “It’s important that businesses like Cruise and [designer mini-chain] Flannels survive because they are the only designer multiples out there and we need that mix in the market.”
But not all suppliers have survived Pow’s aggressive turnaround plan.
In his first two weeks as boss he dropped underperforming brands. He then drafted a list of more exclusive targets for autumn 10, which included British heritage brand Burberry and New York Fashion Week label Proenza Schouler. Both will hit Cruise stores next season.
Pow says Cruise previously played it too safe with established brands, so he has also begun bringing in more niche labels, which for spring 10 included Halston Heritage and denim brand King Krash.
“Exclusivity and being an early adopter of new labels is important,” he says.
Pow says Cruise’s average sell-throughs were 58% as the business emerged from its pre-pack administration. They sit at about 63% at present but Pow intends to drop any brand that doesn’t perform above 70% from next season.
Although Pow is keeping a close eye on the buying strategy - budgets are flat on autumn 09 but spend is spread across more brands - he has also given sales and merchandising staff more input into the process.
“Sales staff felt they weren’t being listened to. They know what customers want but were being ignored,” he says. “I sent them to New York and Paris with the buyers.”
Following the administration, nine stores were closed, reducing the retailer’s portfolio to 11 - a figure Pow has no plans to grow until the economy is on a firmer footing.
Neither does he plan to sell the mini-chain. “When the bank asked me to take the chief executive role I agreed on the condition that I was given majority share because I didn’t want to build the business up for them to sell it on,” he says.
Instead his focus is now on growing web sales and marketing. He says Cruise’s transactional website is still in its infancy and plans to grow it by investing further in IT infrastructure and recruiting five dedicated online buying and merchandising staff. “I want it run like a separate store,” he says. “Product needs to be right for online and it needs to be sold and warehoused separately.”
Pow has also shifted the focus of Cruise’s bricks-and-mortar stores, creating clearer definition between the mainline and denim stores, where he says brand adjacencies could be confusing.
“Cruise chased a younger customer and lost sight of its mainline customer,” he says. “So it brought denim into the mainline stores and lost 20% to 25% of its core mainline customers who were 35-plus because the brand mix didn’t make sense.”
All the remaining stores have undergone a major refit that replaced plain white interiors and side rail displays with striking campaign images by fashion photographer Julia Kennedy and mannequins to display product.
Pow says this has resulted in an uplift in sales of 20% to 35% in all stores on their first days of reopening.
He says turnover for the financial year ended January 2010 is expected to be about £27m, the figure it reached when it last filed accounts in 2008, adding that EBITDA is also now in positive territory.
Although Pow intends to grow the business slowly, he says there is potential for turnover to double within the next three years. He is now embarking on an aggressive marketing strategy
for autumn 10. “We’ve not done a lot of advertising because we’ve been fire-fighting over the past year but we’ll launch a major campaign for autumn,” he says. “I’m also planning corporate affiliations with luxury companies such as car dealerships and football teams to share databases and offer store memberships.”
2009 Chief executive, Cruise 2006 Managing director of retail consultancy Angus James Associates, a position he still holds
2000 Chief executive of financial communications consultancy The Tulchan Group
1997 Chief executive, Mackays Holdings
1993 Chairman and chief executive, Aquascutum
1991 Chief executive, Hackett
1989 International retail, sales and marketing director, Mulberry
1988 Assistant managing director, Ballantyne Cashmere
1980 Managing director, J & D McGeorge
Pre-1980 Various sales and design roles in the fashion retail and supply industry