After enduring a torrid 2019 marred by numerous profit warnings and seismic change at management level, Ted Baker has unveiled a new strategy designed to take the business forward. Retail Week analyses whether it will be enough to return the fashion brand to its former glories

  • Chief executive Rachel Osborne launches new strategy ‘Ted’s Growth Formula’
  • Osborne says Ted Baker has “huge opportunity to grow” in the USA and China
  • Retailer to be less reliant on formalwear
  • Ambition to build stronger relationships with digital players

Last year was the proverbial annus horribilis for Ted Baker. The one-time stock market darling had started 2019 with a bullish Christmas trading update and soaring retail revenues. However, by the year’s end, founder Ray Kelvin, his successor as chief executive Lindsay Page and chair David Bernstein would all be gone, while a string of profit warnings left the retailer on the brink of unravelling.

New chief executive Rachel Osborne, who took the reins in November, has spent her first eight months as CEO rebuilding a shattered senior leadership team and completing the sale and leaseback of Ted Baker’s Kings Cross headquarters, The Ugly Brown Building, in a bid to put the business back on a firmer footing.

On Monday morning, Osborne revealed the next phase of those plans. Ted Baker plans to raise £95m through the sale of new shares, which will help the fashion retailer fund its new three-point strategic plan called ‘Ted’s Growth Formula’.

The blueprint focuses on stabilising the company’s foundations, driving growth and delivering operational excellence. While Osborne was keen to focus on that future during calls with the media and analysts, Ted Baker’s struggles – it swung to a £79.9m pre-tax loss in the year to January 25 – have only been exacerbated by the Covid-19 pandemic.

Can Osborne’s strategy put Ted Baker back in fashion?

Internal and external issues

Osborne believes Ted Baker has suffered from shortcomings at both the front and back ends of its business in recent years. In customer-facing terms, the retailer was slow to respond to “long-term pressures and customer behaviour change”, she says, and was exposed to struggling sectors of the market such as its concessions in department stores and a focus on faltering categories such as formalwear.

Rachel Osborne

Rachel Osborne wants Ted Baker to ‘forge stronger concession relationships with digital players’

Internally, she says the brand hadn’t “evolved creatively” and was “always looking in the rear-view mirror” rather than setting its own design direction. Osborne also suggests Ted hadn’t developed the supply chain excellence and “stronger controls” over its operations that a listed plc of its size now required. 

As a result, she says Ted became bogged down in a three-year stock cycle “with too many options and not enough stock depth” and was left unable to adapt quickly to consumer trends.

Ted is now aiming to build a “leaner, quicker supply chain” with the aim of introducing monthly product drops to maintain relevance. The fact that is only now switching to an open-to-buy model – allowing it to stock the right amount of the right products at the right time – shows how far off the pace it has slipped in comparison to some of its rivals.

But the retailer is making strides. It has already halved its supply base to around 100 suppliers, shortened the stock cycle from three years to two and rapidly improved its speed to market from 14 months to just eight weeks. Osborne identifies such operational changes as “low-hanging fruit” that Ted can go after to effect change.

Liberum analyst Wayne Brown agrees, suggesting such back-end shifts are “about changing processes so they are more tangible and easily identifiable”.

Repositioning product

It is the customer-facing side of the business and its overall product proposition that may take longer to fix.

Osborne wants the retailer to be less reliant on categories such as formalwear and to broaden its proposition in categories such as women’s casual wear, footwear and accessories while building a core of “never out of stock” ranges.   

“We are going to expand into broader key areas. We are underpenetrated in women’s casual versus men’s and also our footwear and accessories are also underpenetrated versus core clothing,” she says. “We see real opportunities to expand into that space”.

For Brown, the key to this will be “taking risks at the top end of the product range” with limited assortments, while creating “new entry price points” at the bottom end.

Brown believes such a shift will ensure that deep discounting becomes a thing of the past at Ted, allowing it to establish “full-price sell-through rates that are more representative of industry standards”.

Peel Hunt analyst John Stevenson observes that such changes are already afoot and Ted Baker has been “doing monthly drops for a couple of months”. Yet he believes the business requires a better understanding of its customer base to ensure it is offering shoppers exactly what they want.

“Rachel Osborne spoke a lot about focusing on accessories, getting customers interested in the brand in a relatively low-cost way and hopefully they then buy other products. To do that you need the CRM in place to understand what the customers want and how to sell to them,” he says.

“Historically it’s not had the capability to understand who its customer is and be able to go directly and market to them.

“Ted Baker has played quite a bit of catch-up in terms of online sales, but it doesn’t really own that relationship with the customer and frankly it should”.

Online and international

In January, following revelations that an accountancy blunder had led to the retailer overstating the value of its stock by £20m-£25m, Ted Baker hired Deloitte to investigate. The auditors found the value of the stock was in fact overstated by £58m.

Chief financial officer David Wolffe says that the investigation painted a “very clear picture” about what improvements can be made by Ted and how it could become a truly “digital-first” business.

As a result, the retailer has committed to investing £6m into improving its ecommerce platform, which will offer new payment service support for customers, improve in-store data capture and “drive better customer insight online”.

While £6m may seem small beer, Osborne says Ted has already ploughed more than £65m into its IT systems over the past five years. 

“Chinese customers do love a British brand – Burberry has forged a way into China ahead of many of us, but we are really hopeful that we can find the demand that we believe is there”

Rachel Osborne, Ted Baker

It is an investment that could prove well-timed. During the coronavirus crisis, Osborne says the retailer has seen “a much higher level of online sales”. She suggests there will be “some stickiness to online” as consumer habits evolve following lockdown. 

Although she does not name names, Osborne wants Ted to “forge stronger concession relationships with some digital players”, potentially opening the door for it to trade on global marketplaces such as China’s Alibaba in future. “I think concessions will evolve to have a stronger digital part to play going forward,” she says. 

China, more broadly, offers up one of the two main international expansion opportunities – alongside the USA – that Osborne wants Ted to pursue. However, she is adamant that the business will do so in a capital-light way, leveraging online and its partnerships with joint venture and franchise partners. 

“In China, we’ve only really got a handful of stores in Hong Kong, and a couple in Beijing and Shanghai,” Osborne explains. “With our new partner over in China, we are going to be looking at secondary cities, tertiary cities and probably doing them through franchisees. In those areas, I’d probably expect to see the physical presence of Ted Baker increase.

Ted Baker sign USA

The USA is one market where Ted Baker sees ‘huge’ opportunities

“Chinese customers do love a British brand – Burberry has forged a way into China ahead of many of us, but we are really hopeful that we can open a number of stores and find the demand that we believe is there.”

In the US, Ted has an existing relationship with department store chain Nordstrom, operating concessions and selling through its website. But Osborne acknowledges that its £20m of online sales in the US is “tiny”. “There is such a huge opportunity to grow there in digital,” she says.

Osborne has set Ted what she admits are “ambitious” targets, particularly given the global economic backdrop in the wake of coronavirus. By 2023, she wants to establish revenue growth of 5% and to record an EBITDA margin between 7% and 10%. 

Ted Baker has plenty of work to do if it is to hit those targets, gain ground on its nimbler fashion rivals and live up to Osborne’s prediction that it will “come out of Covid-19 stronger”.