Look around almost any office and the likelihood is that fewer men will be wearing suits. In many workplaces, the once traditional shirt and tie is as out of style as Spam fritters.
So, at first sight, the tug of war over Moss Bros, which has been associated with men’s formalwear for more than 150 years, is hard to understand. But the intensity of the contest is a sign of the conviction that the appeal of one of the high street’s most venerable names is as relevant in the 21st Century as it was in the 19th.
Battle commenced last week, when Icelandic investor Baugur – which has a long-standing 29 per cent stake in Moss Bros – made an indicative offer for the business. Baugur’s pounce sparked a boardroom split of the sort not seen since Marks & Spencer in the late 1990s.
So why has Moss Bros ignited such passion and interest? After all, this is a retailer with only 150 shops and turnover of about£150 million that is operating in an apparently declining market and last week warned on profits for the second time since December. But the interest seems real, because Baugur’s approach has reportedly prompted a variety of other parties to consider whether they might join the bidding themselves.
Part of the passion can be explained by the fact that Moss Bros is, in many ways, an unusual business on the modern high street. Members of the families that once ran the company have retained a stake of 27 per cent – enough to block a sale. Their decisions are not only influenced by financial considerations, but by emotional and historic ties that they have to the business.
David Moss, the great great grandson of Moss Bros founder Moses Moses and a former director of the retailer, insists that poor management is the reason for the recent disappointing performance and better management would bring a brighter future. “Bad management is the key and central point,” he maintains. He says that, had the company been run more effectively, the families would not necessarily have opposed an offer that would have reflected the business’s worth.
The situation has been complicated by the fact that Moss Bros chairman Keith Hamill announced his retirement last year and will stand down in April. Some believe that a new chairman should have been found urgently to steer the business through what was clearly going to be a time of great change. They feel uneasy that a bid situation must be negotiated during what they see as effectively being an interregnum.
In the present circumstances, David Moss would like the company to remain quoted, under a new management team. Family members think that Baugur’s 42p-a-share offer, which values the retailer at£40.2 million, significantly undervalues the business.
Another shareholder is also keen to highlight the strengths of the retailer. He says: “The company has cash in the bank, no debts, great brands, plus great franchises. The net asset value is£52 million, with no goodwill, which is a good position to be in.”
The City, however, does not take such a kindly view. Moss Bros’s share price has almost halved in the past year, falling below the 40p mark following tough trading and profit concerns.
In its trading update last week, the retailer said that in the 52 weeks to December 31, 2007, sales were down 3.2 per cent on the previous year, “as a result of planned store closures”. Pre-tax profits are not expected to meet management’s original expectations, which house broker Landsbanki had forecast to be£1.4 million. The retailer is also having to restructure and there may be redundancies across the group.
There has been criticism of chief executive Philip Mountford, who joined the retailer in 2002. Some sources claim that his attention has been diverted by Baugur’s long-standing interest and this may have clouded his vision for the business.
However, he is in an unenviable position, caught in the crossfire between the rival camps. He has admitted that moving Moss Bros forward, or recruiting new talent into the business, has been difficult under the cloud of bid speculation that has lasted for a year.
Non-executive director and Baugur board member Don McCarthy has thrown his weight behind Mountford. “We are working with Philip to deliver a strategy that is clearly defined,” he says. “We can align shareholders to one clearly defined view.”
The big opportunity for Baugur, which has – until now – had very little in terms of menswear brands in its retail portfolio, would be synergies that could be made with its House of Fraser department store business. “There are opportunities to grow brands within Moss Bros and other retailers. For example, Moss Bros could go into House of Fraser,” says McCarthy.
Similarly, House of Fraser does not have a suit hire operation. Moss Bros is the hire market leader and that business could be introduced into the department stores.
Industry sources believe that Moss Bros’s brands, particularly its Hugo Boss and Canali franchises, are a key strength for whoever ends up owning the business. David Moss says that the way the franchises are run would be one of his biggest criticisms of the present strategy. “There has not been enough investing in the Hugo Boss and Canali stores. Boss stores deliver significantly higher like-for-like sales growth and sales per sq ft than many of the other shops,” he argues.
No comment was available from Hugo Boss on its position if Moss Bros was to be taken private, but it seems unlikely that it would end its long-term relationship with the retailer, which is poised to open two more Boss stores in the coming months. If Baugur’s bid is successful, Hugo Boss may be keen to exploit the extensive opportunities that a relationship with the Icelandic investor would bring.
Tough times ahead
Verdict lead retail analyst Maureen Hinton says that whoever takes on Moss Bros will have a difficult time. “There is a great deal of polarisation in the menswear sector,” she says. “The supermarkets have strong offers at the value end and, at the designer end, men like the authority that designer labels bring.”
For this reason, she believes that Moss Bros’s high-end brands should be better exploited. “Men like strong brands and Boss is very strong,” she says. “The challenge is what to do with the rest of the business. There are a great deal of other brands in Moss Bros stores and the stores are not that big, so getting the different brand messages across is difficult. They could be established more effectively and benefit from the footfall in a department store.” Other brands developed and sold by Moss Bros include Dehavilland, Blazer and Ventura 21.
Mounting speculation about rival bids has intensified since Baugur’s offer was made public. John Hanson, the man behind menswear chain Greenwoods, is believed to be mulling a move. Meanwhile, Michael Gee, another family shareholder and former director of the chain, is reported to be trying to raise finance to buy out Baugur’s 29 per cent stake for an offer of about 50p a share. Laura Ashley, the fashion and homewares retailer that has built up a 5.4 per cent stake in Moss Bros in the past few months, is also understood to have been approached to take part in a counter bid.
It is less certain what such bidders would want to do with Moss Bros in terms of synergies, but Kaupthing retail analyst Matthew McEachran says that the opportunity to consolidate the men’s suit market is likely to be an attraction. “This is traditionally a very oversubscribed market. A new owner would need to reposition its place in the market, look at refitting the estate and change its infrastructure,” he says.
He believes that younger brands work well for Moss Bros. “Hugo Boss and Simon Carter have caused excitement in the business. Although Baugur has a lot more synergies to put on the table, other bidders may believe they can make more profit in the business and, in the present market, there may be some cheap acquisitions around the corner,” he says.
For retail watchers, there may be something of a déjà vu feeling about the Moss Bros story. Takeover speculation was rife at the start of last year, with reports that Baugur wanted to combine it with Speciality Retail Group to create a “male Mosaic”.
This time, a takeover seems almost inevitable. However strongly the families may fight, David Moss admits that “everyone will have a price” when it comes to agreeing to sell their shares. He also concedes that, with hindsight, the 80p to 85p a share indicative offer, made in 2006 by Baugur, would have been a good offer.
It remains unclear what the exact outcome will be as Baugur embarks on due diligence. One thing is certain, though: all concerned will hope that this will be the final tussle in the fight for Moss Bros and that the company will emerge in a better state to cope with today’s tastes and trends in menswear.