A power of trouble

Peter Halkett has bounced back from the stress of moving into British retailing and says the company aims to break even in two years. Picture / Dean Purcell

The legend is that 44-year-old Peter Halkett's hair turned grey overnight from the stress of running PowerHouse, the British chain that he is trying to bring back from the retail graveyard.

A scan of the Halkett dome suggests an exaggeration - although, in truth, the evidence either way is pretty sparse - but this Mr Fix-It of the Eric Watson empire says the image captures the early pressure of his job.

The New Zealander walked into a PowerHouse of horrors after Auckland's Pacific Retail Group crossed the globe in September 2003 to boldly - or madly - pay $47 million for 134 historically profitable stores of a 232-store chain.

But PowerHouse was bust, its customers burned, its suppliers lining up to repossess stock.

Halkett was a greenhorn in British retailing, with 2000 strangers for his staff.

One wit later described the task as like getting a guy in T-shirt and shorts to climb Mt Everest.

"I certainly aged," says Halkett in the boardroom at 1 Nelson St, Pacific Retail's head office.

He is slightly built, casual and smart in dark pants, white shirt.

Sixteen months into the turnaround project, PowerHouse is still burning cash - it expects to lose $13.2 million for the six months to March 31 after a poor Christmas for British retailers that scuttled hopes of breaking even.

But, despite that, Halkett is less stressed than in the past.

The first phases were the toughest.

Phase one was simply to reopen for trading, phase two to get enough stock moving to minimise losses in the first six months and phase three coming up with the "think local" strategy now being implemented.

The Cantabrian is back in New Zealand from his English home in Oxford, near PowerHouse's headquarters in the village of Bicester, for a two-week holiday interlaced with work.

In the interview he tosses in the odd wink, a few joking asides.

Asked if he is in the job for the long haul, he smiles. "I've just announced a half-year loss of 5 million - the board may be thinking to themselves, well, it's about time we changed horses."

He is experienced enough to know how a throwaway line can blow up in print - "PowerHouse boss: board may sack me" - and adds for the tape-recorder: "I'm saying that jokingly."

Halkett and Pacific Retail are "very calm and relatively comfortable" with the performance of the business, he says, with "more than 50" stores - or just under half - going "really well".

PowerHouse is the little guy, a very distant third in size to the rival appliance chains of Currys, which is part of the listed Dixons Group, and Comet, which is part of Kesa Electricals, a company operating across seven European countries.

Halkett's firm battles Currys and Comet to sell televisions and whitewear in the retail parks of Britain.

It is largely pretty gritty stuff with the industrial centres of the Midlands and the north - Birmingham, Manchester, Liverpool and Newcastle - featuring as the strongholds for PowerHouse. London barely registers, as the home of just three stores.

One in six stores are in Scotland. Each store has 10 to 15 staff.

Sceptics watch the business gulp down cash from Pacific Retail's $138.5 million sale last year of the retail chains Bond & Bond and Noel Leeming and ask how long PowerHouse can be sustained.

The other main assets of Pacific Retail - a company 81 per cent owned by the London-based Watson, one of the richest New Zealanders - are a soon-to-be-floated finance company and the lingerie manufacturer Bendon.

"I don't think you're going to see a Graeme Hart from Eric Watson," says one non-believer, an institutional investor who is referring to Hart's resurrection of Burns Philp in Australia.

The latest expected loss is well below the $41.2 million for the previous corresponding period, although that was when PowerHouse was staggering back to its feet, so the comparison is not truly like with like.

It is also down on the $39.2 million lost in the six months to the end of September.

But add together the purchase price and the cumulative losses - actual and forecast - and you get a total of $150 million. Ouch!

The aim remains to break even in the year to March 31, 2007.

PowerHouse points to sales figures heading in the right direction - with like-for-like store increases for the three months to January 1 of 28.5 per cent and a total increase of 13 per cent despite fewer stores.

But the increases are from a low base when the business was just out of receivership and, significantly, the margins on sales are lower than hoped.

Still, Halkett thinks he is getting traction and momentum.

Assembling a management team took much longer than expected but he finally has a trusted number two in experienced British retailer Chris Onslow, who came aboard in July.

"Finding the right people has been our single biggest challenge, from senior management level through to store manager through to salespeople," says Halkett.

He is slashing away at costs, cutting staff and closing stores seen as unlikely to become profitable within 12 months.

Eleven stores have gone since Pacific Retail took over and more closures are coming, amid indications that the final size of the chain could be 100 to 110 stores.

A sweetener - for the company at least - is the gains from selling leases, with the company's half-year report noting $31 million in gains from exiting 10 properties.

Halkett is like a chef creating a stew from whatever happens to be in the fridge - making the best of a grab-bag of stores that may have survived for local and idiosyncratic reasons.

"There's a big difference in demographics depending on where our stores are located, a big difference in customer profile between Scotland and England, and even stores within Scotland and England.

"We've got stores in wealthy areas, we've got stores in poor areas, we've got stores in younger areas."

In what looks like making a virtue of necessity, the new strategy for PowerHouse is to decentralise - tailoring product offerings to the tastes of shoppers in individual retail parks and operating like a national chain of independent stores.

"Local" is the key word - a focus on each individual "shopping catchment", the people within 6.4km of a retail park.

Talking of the product mix in stores, Halkett says: "It can't reflect some sort of national strategy, it must reflect the people who are already shopping in the park."

Store owners will not hold ownership stakes but their pay arrangements will mimic ownership in a set-up similar to that of Noel Leeming, formerly owned by Pacific Retail, in New Zealand.

A second new theme is what Halkett sums up as: "Everyone in a PowerHouse store sells," his explanation for shedding 350 staff in a restructuring that is expected to be completed by the end of March, incurring one-off costs of "less than 500,000".

Up to 90 jobs could be added as staff are redeployed or hired for new roles and Halkett talks of an expected staff total at the end of March of 1700 - although uncertainties around store closures make the numbers a moveable feast.

The idea is that salespeople do other jobs as well, such as cleaning.

It is a measure of the scale of the task of reviving PowerHouse that 16 months after Pacific Retail took control, Halkett talks only now of getting a clear view of the company's revenue.

The possibility of expanding into digital cameras, mobile phones, laptops and iPods - the products that boosted other retailers' Christmas figures - is for later, after "getting the basics right".