Gerald Ratner on making mistakes
Making seemingly innocuous comments can prove fatal in business as Gerald Ratner knows all too well as he recalls the speech he made in 1991 that prompted his personal downfall and almost led to the collapse of the family’s jewellery business.
Speaking at the recent Propel conference Gerald Ratner, former CEO of The Ratner Group, recalled the speech he made at the Royal Albert Hall during which he jokingly denigrated two of the company’s best-selling products. Addressing a conference of the Institute of Directors he said: “We also do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on, all for £4.95. People say, ‘How can you sell this for such a low price?’ I say, ‘because it’s total crap’.”
He was seemingly on a roll and added that one of the company’s sets of earrings was “cheaper than a prawn sandwich from Marks and Spencer’s, but I have to say the sandwich will probably last longer than the earrings”.
One of many mistakes
Ratner now admits that this was merely one of many mistakes he made during his time at the company. He had expanded the business into The Netherlands and was pleasantly surprised that the stores took a lot more money throughout the year than their UK counterparts that only make money in December. But he says the sting in the tail was that December did not bring a bonanza of sales in The Netherlands stores as he found out that presents are not exchanged at Christmas in that country.
Around this time The Ratner Group was looking to expand further in the US by buying the Kays Jewelers business that operated 500 stores. But The Netherlands debacle meant there was no confidence in the City for the company to issue equity to fund the acquisition and so a $500 million deal was done to issue convertible shares at 420p.
Unfortunately the Albert Hall speech would hit the share price so significantly that the company lost £500 million of its value. This prompted the shares to subsequently convert to debt and Ratner Group found itself owing the banks £1 billion. “This billion was a worry and so I called McKinsey who looked into it and said there was no solution to the problem,” recalls Ratner.
In the aftermath of the speech he decided to counter the negativity in the media by appearing on the TV chat show Wogan and apologise publicly to its 10 million viewers. But it backfired as he found it merely informed the other half of the population about his calamity who had not heard about the speech.
Discounts on discounts
He also decided to undertake a dramatic move by reducing everything by 25% in the pre-Christmas run-up on top of existing discounts. “The board said they wanted it on the record that they were against it and McKinsey also said I was making a mistake. But I ignored them and went ahead. It was a categorical disaster. Sales and margins collapsed,” he says. This did not help the £1 billion debt.
At this low point he made a visit to the boss of Barclays, Andrew Buxton, who informed him that because the forecasted £200 million in profit of The Ratner Group had been missed by £300 million the company had broken its borrowing covenants. He also notified Ratner that the debt was not just with Barclays but had been syndicated out to 65 banks around the world. Ratner would have to go on a world tour to persuade them all to roll over the debt because if a single one pulled out then it was all over for the company.
Rather than travelling the globe Ratner took up the recommendation from Buxton and the City to hire a chairman with banking experience. “He then went and fired me,” says Ratner. On his last day in the job at the family firm in 1992 he was door-stepped by a journalist who asked if the speech had cost him his job. “Well, it didn’t help,” he replied.
Going online
With time on his hands he took up cycling, which he says “kept him sane”, before opening a health club that he ended up selling five years later. At this point in 2001 Jurek Piasecki, CEO of jewellery chain Goldsmiths, suggested Ratner make a return to the sector selling jewellery online. With his recognition in the media the announcement would certainly enjoy plenty of coverage.
“It was announced to the press that I was raising £5 million for [the launch of] RatnersOnline with headlines suggesting I deserve a second chance. But the cream of the City said the business was not a runner because online is just a B2B business,” says Ratner incredulously.
He instead sourced funding from an export manufacturing company, SB&T International, based in India and launched GeraldOnline. The use of the original planned name, RatnersOnline, had been scuppered by the management of the old Ratners Group even though the company had changed its name to The Signet Group in 1993. The pioneering online operation went on to achieve annual sales of £25 million although it ceased trading in 2014.
Ratner says that such is his infamy that even today when any mistake is made it is often referred to as “doing a Ratner”. When Prince Charles’ pen did not work during his investiture as King, Ratner jokingly suggested on social media that he had sold the pen to the King. “I got 28,000 likes whereas for everything else I get about seven,” he suggests.
