Shop Direct owners the Barclay family are understood to have kicked off a review of their business empire, raising questions about the etailer’s future ownership.

The review, which comprises the bulk of the family’s business portfolio including The Ritz Hotel in London, newspapers The Daily Telegraph and The Sunday Telegraph and delivery business Yodel, comes at a challenging time for Shop Direct.

Shop Direct, which will rebrand as The Very Group this month to align itself with its biggest brand, reported spiralling losses in its full-year results last month. It posted a statutory loss of £185.5m in comparison with a loss of £24.7m the previous year.

The retailer blamed its ballooning losses on an “unexpected surge” in PPI payout claims amounting to £169m in the final weeks of its financial year, resulting in a £150m funding gap the business needs to plug.

Shop Direct says it is “evaluating a number of funding options” to make up for the shortfall next year but would not be drawn on which route it was likely to take.

Stable footing

So, as the business is swept up in a wider business review, and with a less than stellar balance sheet, is it likely Shop Direct will be offloaded altogether through a sale or float? Other options might include bringing in more investors or a Barclay cash injection. 

The Barclay family is understood to have ramped Shop Direct up for a potential sale or float under the leadership of previous chief executive Alex Baldock several years ago – but ended up beating a retreat after the business did not garner sufficient interest from the market despite five consecutive years of rising sales and profits. 

If the retailer was not able to whip up a bidding frenzy with that performance, the likelihood of it doing so in the current climate of subdued consumer spend and Brexit uncertainty seems slim.

It should be said that – PPI bombshells aside – the underlying performance of Shop Direct is stable.

“There are blue skies on the horizon. Baldock’s successor, Henry Birch, has strengthened the retailer’s executive team”

The retailer’s underlying EBITDA increased 3.3% to £271m during the period, while group revenue rose 1.8% to £2bn. However, that performance, while entirely respectable, has not come with the sing-it-from-the-rooftops fanfare that accompanied Shop Direct’s results in previous years, when the business was ploughing investment into its Very mobile app and waxing lyrical about the potential of AI to transform its operations.

Shop Direct has also undergone a period of transformation in the last 18 months. A flurry of executive exits and plans to axe three of its legacy fulfilment centres dominated headlines about the business in 2018.

But there are blue skies on the horizon. Baldock’s successor, Henry Birch, appointed last September, has strengthened the retailer’s executive team with appointments ranging from former Sky Betting executive Andy Burton as the retailer’s first chief technology officer to Ben Fletcher, poached from Clarks for the role of chief financial officer this week.

Shop Direct is also preparing to open its purpose-built 500,000 sq ft fulfilment centre early next year, which will allow next-day delivery to customers who order as late as midnight.

Growth sprint

It’s a backdrop that, alongside the imminent rebrand, feels akin to an athlete that has done their warm-up and is now crouched at the start line, waiting for the gun to fire. Which would make it an odd time for the Barclay family to get rid of it.

Likely lack of market appetite aside, the work in readying Shop Direct for another growth sprint makes staying the course seem the most sensible move – particularly when The Ritz is understood to be up for sale for £800m. Being lumbered with the unexpected PPI bill is unlikely to have brought any potential detractors of Shop Direct onside.

While reducing Barclay ownership of the business by bringing in outside investment may be on the cards, it seems unlikely the family would offload the business outright.

It is thought the family are close to sealing a £150m refinancing of Shop Direct. That makes sense. Shop Direct may not be the business empire’s MVP today, but it has plenty more track left to run.