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Battle for Superdry's soul rages after series of profit warnings

Battle for Superdry's soul rages after series of profit warnings
Published by
The Guardian

6m read

15 March 6.48am

Hargreaves Lansdown is not responsible for this article's content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest. Article originally published by The Guardian.

Superdry used to be one of the hottest fashion labels on the high street, feted by investors for its financial performance, but these days it is the scene of one of the City’s biggest bust-ups as its founders fight an increasingly bitter battle for control with its management.

When the firm’s multimillionaire co-founder Julian Dunkerton stepped down a year ago it was said to be a friendly farewell. He was, he said at the time, leaving the brand - favoured by celebrities such as David Beckham and Idris Elba - in safe hands, to focus on his family cider business and a small chain of boutique pubs and hotels.

Euan Sutherland, Superdry chief executive

Sutherland is better known for the way he quit the Co-operative Group than for running Superdry.

The 50-year-old Scot angrily stormed out of the crisis-hit mutual in 2014 after details of his £3.6m pay deal were leaked to the Observer. He immediately took to the Co-op’s Facebook page to rage against people trying to undermine him and quit the next day, blasting the Manchester-based group for being “ungovernable” in his resignation letter. He later received a £1m payoff.

Standing an imposing 6ft 6in, Sutherland started out as a graduate trainee at Boots but soon switched to the consumer goods giants Mars and Coca-Cola. He had stints at high street chains including Dixons, Matalan and Superdrug, working his way up to the top job at B&Q before joining the Co-op.

Julian Dunkerton, Superdry co-founder and biggest shareholder

Dunkerton is Mr Superdry. A self-made multimillionaire thanks to the streetwear brand’s success, Dunkerton cut his teeth selling clothes from a Cheltenham market stall. His first retail chain was called Cult Clothing, but things took off in 2003 when he created Superdry with the designer James Holder. Known for its trademark hoodies and T-shirts emblazoned with Japanese-inspired graphics, the first Superdry store opened in 2004. It kickstarted a period of breakneck growth that led to a stock exchange float in 2010.

Superdry plc

Sell: 545.00 | Buy: 546.00 positive 14.00 (2.64%)
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After three decades in the fashion industry, Dunkerton’s role at Superdry’s Cheltenham base became less hands-on after Sutherland was hired as chief executive in 2014. Last March he stepped down, purportedly to concentrate on his other ventures that include a small group of upmarket pubs and hotels in the Cotswolds and the Dunkertons cider company. However, it later emerged there had been a row over strategy.

The 54-year-old is worshipped by former staff who praise his fashion nous and generosity. The company’s recent problems have wiped more than £230m off the value of his 18.5% shareholding.

Zoe Wood

But then Superdry’s share price went into freefall. There have been a series of profit warnings and the real reasons for Dunkerton’s departure emerged: there had been an old-fashioned fallout over strategy. The new leadership team, led by the chief executive, Euan Sutherland, sought to move away from selling the heavily branded hoodies and T-shirts that helped make Superdry a success, whereas Dunkerton was keen to stick with his tried and trusted strategy.

It is easy to see why Dunkerton is upset. Superdry’s shares were worth £20.39 at the start of 2018 but are now changing hands for £5.32. The value of his 18% stake is down by more than £230m and the company’s market value has dwindled so far that it has been booted out of the FTSE 250 index.

Dunkerton wants to take back control. On Thursday he upped the ante in his campaign to be reinstated on the board, writing an open letter to shareholders and using his Save Superdry website to set out a strategy he believes will turn around a business that he feels is being led rapidly in the wrong direction.

In his letter Dunkerton insists: “I understand the brand. I created it with James Holder [the designer], and we achieved sustained and profitable organic growth over many years, and can do so again. We have the future prosperity of Superdry, its employees, the brand and its customers at heart.” Holder owns nearly 10% and is backing Dunkerton.

In a broadside aimed at Sutherland, Dunkerton argues the company has gone from being an innovative brand famous for its Japanese graphics and Americana influences to one with a “misguided consultant-led business model”.

Dunkerton has demanded, and got, a shareholder meeting, to be held on 2 April in London, to settle the issue. He is also seeking to install Peter Williams, the chairman of the online fashion retailer Boohoo and a former boss of Selfridges, as a non-executive director to work alongside him.

As the company and other shareholders have resisted Dunkerton’s comeback bid, the war between the entrepreneur and the business has moved from behind closed doors in its Cheltenham headquarters into the public domain. While Dunkerton once celebrated the handover of power to Sutherland, the entrepreneur is now vocal about his lack of fashion industry experience.

“This is about people who are out of their depth,” Dunkerton told the Guardian in December. “In the top team there is nobody with clothing or brand experience, and that’s a major issue.” He cites the recent move into kidswear as a prime example of their cluelessness. He would cancel it, arguing it would destroy the “cool factor” for 16- to 24-year-olds.

With the company adamant that Dunkerton is the problem not the solution, the Save Superdry website has become a lightning rod for private shareholders, current staff and former employees to vent about the state of the company.

Morale has been hit by cost-cutting plans. Up to 200 of the 1,000 staff at the Cheltenham HQ could lose their jobs as part of a wider plan to cut running costs by £50m over the next three years.

Among the harshest critics of the current management on Save Superdry is its former head of creative James Meigh, who left last year. He claims Sutherland has a “supermarket” mentality that has fuelled the brand’s descent into “discount hell”.

“Superdry was founded during a recession, it was simply extremely creative and unaffected by high street trends … with an obsession on detail and quality, all of which are being removed as we speak,” said Meigh in the post. “If [Dunkerton] wanted Superdry to be Next he would have done just that but he wanted a cool brand. Euan [Sutherland] will never understand creative or cool.”

Ian Keely, a small shareholder, has purchased the Superdry shareholder register and plans to write to the firm’s 600-plus shareholders ahead of next month’s meeting. Keely is worried that institutional investors are apathetic and have not engaged properly in the debate. “Who wouldn’t welcome back the Steve Jobs and the Steve Wozniak of the UK fashion world?” said Keely, who is trying to rally the support of the small shareholders, who together own 13% of the company. “We can make a real difference,” he added.

The only people who seemingly do not think Dunkerton is a genius are in the boardroom. The current directors are unanimously recommending that shareholders vote against the appointment of Dunkerton and Williams. The big institutional investors are said to be rallying behind management.

On Thursday the company blasted back that there was “little new information” in Dunkerton’s missive to shareholders and described his turnaround plan as thin on detail. It has also slammed his “leadership style”, saying it “does not fit within the open-minded collaborative culture, values and operation of the company”. His return, they say, would “damage morale”, lead to “dysfunctional relationships” and prompt key people to quit.

The board said it had also received an unsolicited letter, signed by 31 senior executives, expressing their support for the current strategy and leaders.

A spokeswoman hit out at those who have posted on Dunkerton’s website: “We always listen to all points of view, but many of those providing unsubstantiated comments and opinions on the Save Superdry website are friends and business associates of Mr Dunkerton and Mr Holder, or former Superdry employees.”

Dunkerton, however, will not give up, with his own financial losses spurring him on. “Our interests are directly aligned to those of all shareholders,” he said. “This is not an ego trip.”

This article was written by Zoe Wood from The Guardian and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Article originally published by The Guardian. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

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