Opinion: Are Ted Baker’s woes down to Ray Kelvin’s departure?

The fashion brand dismayed investors and analysts alike last week when it posted a £23m loss for the 28 weeks to August 10, down from a £24.5m profit in the same period the previous year. Revenue across the group dipped 0.7% to £303.8m, while total retail sales slipped 2.5% to £214.5m.

Another worry for Ted Baker is the performance of ecommerce. Despite having a historically strong multichannel ecommerce offering, online sales for the first half fell 1.3% to £52.3m.

In response, investors knocked 35% off its market value within hours of the results being posted and it closed the day trading at historic lows of 469.4p.

Ted Baker’s new chief executive Lindsay Page predominantly blamed the results on “tough trading conditions” and a highly promotional fashion market – two factors that the fashion retailer has prided itself on defying in the past. Yet analysts believe the problems run much deeper.

In a note, Liberum analysts described the results as “unexpectedly poor”, and said the first half of the year didn’t paint a pretty picture for the brand moving forwards, while Peel Hunt said the numbers show that “the Ted brand is losing relevance in its target market”.

While the numbers alone would be a concern for any retailer, the speed with which the business has gone into decline must also be a concern. The once, in the words of GlobalData analyst Emily Salter, “untouchable” fashion powerhouse now seems to have fallen to earth.

Is its sudden and precipitous fall from grace the combined result of a brand resting on its laurels and being caught out by the travails of the high street, or is it a direct result of founder and brand visionary Ray Kelvin’s abrupt departure?

Ray’s shadow

When Ted Baker founder Ray Kelvin stood down in March following numerous accusations of professional misconduct, many wondered how the business would fare without him.

After all, there were few founders quite so entwined with their business as Kelvin was. Despite his insistences that he and Ted were different people, the brand was his creation and muse. In an interview with Retail Week last year, Kelvin said of his creation: “He is iconic, I am a disciple.”

GlobalData’s Salter says it is hard to pinpoint just how big a part Kelvin’s ignominious departure from the business has played in the disappointing results.

“It’s difficult to believe that his exit alone would have such a huge impact on sales and profits – despite his huge influence on the brand”

Emily Salter, GlobalData

“Kelvin’s departure no doubt caused some turbulence within the retailer,” she says. “But it’s hard to know whether his departure impacted the brand’s performance. It’s difficult to believe that his exit alone would have such a huge impact on sales and profits – despite his huge influence on the brand.”

Peel Hunt analyst John Stevenson agrees, saying: “This has been going on for a while, it was happening when Ray was there. As a long-design, wholesale-led business, the problematic range that dropped over spring/summer would have been put together the year before.”

So, while the malaise at Ted Baker runs deeper than Kelvin’s alleged indiscretions, in many ways the rot had set in before his exit. 

Price and relevance

For Peel Hunt’s Stevenson, one of Ted Baker’s key problems is its high price point compared to some of its competitors – such as Jack Wills, French Connection and Dorothy Perkins. He believes it has caused the brand to become less accessible for its core customer.

“Price point is an issue. It’s not rampant inflation of like-for-like products, but in terms of the pitch, a lot of lines have been added at higher price points. It’s made the brand less accessible than it could have been.”

Stevenson also points out that Ted Baker has become heavily reliant on department stores in terms of its wholesale business, which has left it at the mercy of struggling chains such as Debenhams and House of Fraser.

GlobalData’s Salter agrees, saying Ted Baker needs to “re-establish its brand identity, retain its loyal shopper base and reduce its reliance on discounting”.

She also suggests the retailer focus on luring customers from rival brands such as Karen Millen and Coast, who would be less likely to want to shop purely online since they were snapped up by fashion etailer Boohoo.

Ted Baker’s brand may still be strong, but it faces a long road back to former glories and said in last week’s results that trading for the second half of the year has started sluggishly. The intriguing question remains though, as the onetime beating heart of the brand, could Kelvin have been the man to replot its course?

The answer to this question may well be near at hand. Rumours are swirling increasingly around the City that Kelvin is looking to seize back control of the brand with a management buyout (MBO).

Although, as retail analyst Nick Bubb says, the collapse of the share price on Friday doesn’t imply “there is much hope” for an MBO among investors. 

Whatever the outcome is, it’s clear that, while Ted is not finished, it is certainly not infallible any more.