Norman conquest

Farmers staff in 1930 pictured in front of the main store in Auckland City. Photo / Supplied

Anne Norman is concerned that we like the Farmers' 100th anniversary cake.

"It is all right?" she fusses, paying more attention to serving us with plates and napkins than to the photo shoot the Herald is trying to corral her into.

This pleasant woman seems like someone's mum. Which she is.

She is also, just quietly, half owner of a retailing empire that is five times the size of publicly listed jeweller Michael Hill.

It is likely that you've never heard of her and husband David, because just quietly is how the Normans do things.

"You don't need to write that," David urges several times, when he catches himself speaking more plainly.

The Norman family presides over James Pascoe Limited, a giant retailer with 611 outlets across New Zealand and Australia under the Pascoes, Stewart Dawsons, Prouds, Goldmark, Angus & Coote, Stevens and Farmers names.

The couple has agreed to give what is billed as their first and very possibly their last media interview.

The reason they have decided to break this habit of a business career is because they take their role as custodians of a Kiwi retailing icon seriously.

Farmers' milestone 100th birthday is a big event for them. They have even commissioned a centenary book by Auckland University business historian Ian Hunter.

The Normans have owned the department store chain since 2003, when they bought it from Australian supermarket operator Foodland Associated. But its history and values are inextricably intertwined with their own.

They are babyboomers, David says, the generation for whom a visit to Farmers' huge Hobson Street store with its tearooms, pedal cars and Hector the cockatoo was a standout childhood moment.

"I was brought up in Dargaville and the big treat was to come to Auckland and go to Farmers," he says, echoing a memory held by virtually every Aucklander raised in simpler times.

They are also dyed-in-the-wool Auckland retailers.

Anne is the grand-daughter of James Pascoe, who opened his first jewellery store in Ponsonby three years before hardware salesman Robert Laidlaw launched the Fort Street mail order business that would become Farmers.

David began his early career working for supermarket pioneers Tom Ah Chee and Norman Kent at Foodtown Kelston.

Their business ethos is what book author Ian Hunter calls "old school".

The family's invisibility is part of a deliberate strategy that includes not taking any profits out of their companies. Ever.

"We don't, we just let them grow," David says. They could not operate in the same way if they were a publicly listed company. "Your shareholders all need to be fed, they want a return on their investment. We're quite unique, I think, in the fact that we're prepared to reinvest the proceeds."

Contrast this with the state of Farmers when they bought the retail chain for $123 million in 2003.

After 77 years of relative stability Farmers had gone through a series of four owners in 17 years, starting with corporate raider Chase Corporation in 1986.

Debt-laden Chase stripped profits out of the retailer before its collapse in 1989, creating the biggest loss in New Zealand corporate history.

Farmers was then controlled by a syndicate of banks until discount department store chain Deka formed a joint venture with then-Foodtown and Countdown owner Foodland Associated to buy Farmers in 1992.

But Foodland knew supermarkets better than department stores. By the time the Normans came on the scene Farmers had expanded into loss-making areas such as hardware, computers and gourmet food.

The warehouse operation was a shambles, corporate excess ruled, and reinvestment was limited, David Norman says.

Foodland was also a public company, which would run down its merchandise to get its figures looking good at certain times of the year.

"Every three months just before they had to report to the Stock Exchange they'd have these sales," Anne says.

It could be said that the Normans rescued the stressed-out business.

When they took over just 1.5 per cent of the company's EBIT (earnings before interest and tax) was coming from the retail side, with the rest coming from its finance operations.

They set about cutting costs by $25 million. Flattening the management structure saved $5 million a year and discounting was curbed.

They invested $35 million in technology and $100 million in revamping the stores. "They have a tendency for returning businesses to their core proposition and focusing on the customer and the stock and the shops," Farmers chief executive Rod McDermott says of the Normans.

"The decision was to make Farmers a fashion department store."

Top management was cleaned out: the dead wood "tends to be at the top of the tree", says David Norman.

Once you prune, new buds come out and that's how McDermott, then the general manager of merchandising, emerged, his employers say . McDermott, who has now been with the company 19 years, "knows buying".

The Normans are extremely hands on. "The day [they] bought the business David moved into the Farmers office," McDermott says.

David Norman recalls the surprise of staff when he started working alongside them in the distribution centre, moving stock and cleaning up.

To him it was natural - the couple had a policy on the jewellery side of the business that everyone had to spend some time working in the warehouse.

Farmers was overflowing with faulty or damaged stock piled three high, Norman says. "You can't run a warehouse with over 80 per cent capacity because you just run out of spaces to move stock to."

The new owners shed poor selling lines, and focused on on fashion, cosmetics and homewares.

They found that a department store is in reality a series of specialty stores.

"Unless you're prepared to be that little bit edgy in your buying ... and accept that you're going to have to clear the colours that shouldn't have been bought ... you are going to become boring to the public.

"And I think that's where Farmers really lost their way."

Anne says the difference is they understand the Farmers customer. "We know our market and we're really comfortable in that market."

After all this change you would think that Farmers is now a licence to print money.

But David Norman says despite its iconic brand status the group is not and probably never will be wildly profitable.

"The reality is our expectations of Farmers are relatively modest, and I don't think the previous owners have realised that.

"To give your customers maximum value means that as owners you can't maximise your returns.

"We're a bit different to everybody else - we're not here for the money."

He indicates the return Farmers does provide is around 7 per cent, compared with David Jones at about 11 per cent.

The Normans steadfastly refuse to talk financials, for either James Pascoe in general or Farmers in particular. They don't need the publicity, they argue, unlike listed competitors who use the media to talk up share prices.

David points the Herald to the accounts for the company's Australian subsidiary Proud Jewellers Pty Limited, which show revenue of NZ$707.6 million for the year to May 2009 - "considerably less than half" of James Pascoe's business.

Based on those hints James Pascoe's annual revenue is in the order of $2 billion - beating The Warehouse at $1.7 billion, and eclipsing Michael Hill's $412 million and Briscoe Group on $388.4 million.

Ian Hunter says there are lessons to be learned from the Norman way of business.

Companies that use their kind of conservative stewardship - taking the long-term view, keeping debt down and investment up - are the ones which have weathered economic storms.

"It's actually an old school way of running your firm, and right now in this climate it suddenly looks like a very smart way."

Farmers has mostly been run that way and is one of the reasons it has lasted 100 years, he says.

It faced a similar scenario before the oil shock in the mid-1970s. New Zealand had seen prosperity in the five years leading up to 1973, and Farmers had ploughed profits into shopping mall expansion and developing its stores. "Then the oil shock hit and it all went pear-shaped for everybody."

While other famous retail names disappeared, Farmers survived.

Another aspect to the Farmers story is its enduring relationships with suppliers.

Retail fitout specialists R H Page, which drew up the plans for the Hobson Street store, still works with the firm.

And Fisher & Paykel Appliances, which began supplying Farmers in 1938, retains an exclusive supplier arrangement.

Bedmaker Sleepyhead has supplied Farmers since the 1930s when it had its factory up the road in Pitt Street.

Joint managing director Graeme Turner says changes of ownership at Farmers' made no difference - the heart of the business remained.

Customers all over the world liked variety and established names: "They trust department stores," says Turner.

Likewise Valerie Riley, general manager of Elizabeth Arden, says the cosmetics company's trade has increased significantly with the Normans' focus on the beauty category and on lifting the prestige of the stores.

David Norman says he believes in leaving a dollar in it for the other guy, otherwise suppliers will simply skimp on quality and service.

Riley attests to his philosophy: "Instead of them trying to screw us we worked together to grow the business."

Wayne Walden, head of Farmers-Deka in the 1990s, says New Zealand is fortunate that the Normans purchased the company.

Retail companies are by their nature "very capital hungry businesses", he says.

They require expensive leases, high fitout costs, substantial inventory levels, and because of New Zealand's geography a centralised distribution operation.

With department stores in particular their very size and presence is part of the attraction.

The Normans were "astute buyers" of businesses, and retailers at their core: "The last thing you want is a business like this controlled by the finance and balance sheet controllers."

Walden questions the desirability of retailers being publicly listed. "Far better, if you've got capital, to keep them private."

Farmers Your store for 100 Years
by Ian Hunter Harper
Collins($49.99) Sold at Farmers from October 1