Theo Paphitis: ‘It feels like retail is now closer to the precipice’
4 NOVEMBER 2018
Like any other disgruntled constituent, Theo Paphitis often takes his problems to his local MP. It just so happens that the Member for Runnymede and Weybridge who listens while the former Dragons’ Den star gets something off his chest is Philip Hammond, the Chancellor.
Handy when you consider the entrepreneur’s biggest beef is the unfairness of business rates which pour close to £30bn a year into Treasury coffers but are routinely blamed for squeezing the life out of Britain’s high streets.
“We’ve had words in the past but we are still talking which is important,” says Paphitis, whose empire stretches across the Ryman stationery chain, homewares retailer Robert Dyas and Boux Avenue, a lingerie seller.
After last week’s Budget, the words may be choicer next time. Although Paphitis says Hammond is an “incredibly sensible guy”, he is angry that he did not go further while stood at the Dispatch Box.
“Anyone that knows anything about retail would tell him that this minor relief to our industry will make no difference to the continued demise of the once great British high street,” Paphitis says, lambasting plans for temporary rates relief for small retailers and restaurateurs plus a £675m “special projects” fund. “The Chancellor was quick to tell us retailers that times are changing and we should adapt accordingly. I, and no doubt many others, found that particularly insulting.”
The tycoon is even less charitable when it comes to Sajid Javid, the Home Secretary, who as local government secretary reviewed the business rates system but kicked any changes into the long grass.
“What a halfwit,” Paphitis labels the man some regard as the next prime minister. “Why would you go into politics if you don’t want to make a difference? It is not just him, there are lots of them guilty of it. No one is doing anything about it (business rates) because it would involve putting their bum in the bacon slicer.”
Such blunt language is not uncommon from the self-made businessman who left school at 16 and whose fortune is now estimated at £300m. In last year’s annual trading statement for the privately held group, Paphitis warned that “it really does feel like retail as we know it is creeping closer and closer towards the precipice”.
Toys R Us, Maplin, Homebase, New Look: the numerous failures and store closures this year offer plenty of evidence of the tough times that shopkeepers are enduring.
There are higher costs of course, including the minimum wage and rents. The consumer is also feeling the pinch after a World Cup-inspired spending spree petered out in September. But Paphitis, tanned and wearing a bright checked shirt, is laser-focused on business rates.
The tax on the physical stock of property, regardless of how efficiently it is used or how much revenue it generates, tips the balance heavily in favour of internet retailers that trade from giant warehouses instead of those that choose to maintain a high street presence.
So what about the digital services tax on revenues from search engines, social media platforms and online marketplaces that the Chancellor also unveiled and is forecast to bring in £400m by 2022? Paphitis dismisses that haul as “likely less than the digital big boys spend on their staff’s skinny chai lattes”.
He favours a transaction tax for both physical and online retailers. What he proposed six years ago would have raised 14pc more than the amount business rates was bringing in, he calculates. “The fact is when you have a cake that is shrinking your take shrinks,” he says. “But on the other side there is another cake that is growing vastly.”
Never mind the northern town centres struggling along with 30pc vacant retail sites. Paphitis says he can see the impact of the Government’s failure to act on his drive to work every morning from leafy Weybridge in Surrey to his Wimbledon base in south-west London.
“A lot of properties are boarded up and sheltered housing is being built. Is that what we are really going to do, make every high street into a retirement village?” Paphitis employs 170 people at his headquarters and more than 4,000 staff overall. Some lunchtimes he exercises Gladys, his cocker spaniel, on the common.
Born in Cyprus, the entrepreneur arrived in the UK with his family aged six. School was a struggle. His dyslexia was detected late and only a job in the tuck shop provided a bright spot. “It allowed me to shine and allowed people to see that I wasn’t stupid – there was something worth salvaging here”.
That love for retail was revived a few years later when he became a sales assistant for Watches of Switzerland in London’s Bond Street. “I remember going home and saying to (his wife) Mrs P it was fantastic and I couldn’t wait to go back the following day.”
He made some money in commercial property that enabled him to return to the industry by a circuitous route. Ryman had fallen into administration in 1995 and Paphitis, after working on some earlier turnarounds, seized his chance to acquire it.
Because the paperless office revolution was meant to be just around the corner, sceptics said the business was doomed. Paphitis thought otherwise. “In those days we sold typewriter ribbons and things like fax rolls. We had to move with the times so we replaced ribbons with ink jet cartridges at 10 times the price.” Last year the chain made an underlying profit of £10m.
Ryman provided a template as Paphitis developed a reputation for buying businesses out of administration. One of the first times I encountered him was in 2005 when he acquired, along with fellow Dragon Peter Jones, Red Letter Days, the gift experience company he discovered was in financial trouble after reading my coverage.
That takeover was particular piquant because the venture had been owned by a third Dragon, Rachel Elnaugh. Having become profitable, it was sold on last year.
“If you buy an asset for the wrong price in the wrong way you are going to struggle to turn it around,” he says, sipping a glass of red wine. More importantly, don’t buy an asset with a view to selling it on, he advises.
“You have got to buy it and assume you are going to have it forever. Treat it like that from the very first day. Don’t buy it private equity style, bump up the profits and cut the costs to zero. If you treat people like rubbish, guess what happens? Rubbish.”
Boux Avenue was different. The lingerie chain was the product of a team drinking session in 2009, three years after he had exited La Senza and Contessa.
“We were complaining about La Senza and Marks & Spencer and started sketching out the perfect lingerie store. Apparently I agreed to fund it, or so they told me the following morning.”
Boux Avenue launched two years later in the teeth of the recession, which meant Paphitis could pick up some cheap sites. Today, it has 30 stores and turns over £50m.
What is consistent throughout his story is how he makes sure his people feel part of an enlarged family. Recently, 500 staff convened in Birmingham for the group’s annual conference where Paphitis, 59, dressed as the ringmaster from The Greatest Showman movie.
Dragons’ Den – where budding entrepreneurs pitch their ideas to five veterans in the hope of winning financial backing – made him more famous than his retail brands, something that hasn’t done business any harm in the long term even though he left the BBC Two show six years ago.
“If it’s on it’s on, but I don’t make a point of sitting and watching it,” he says. “The fact is it simplifies what business is all about. It is so much common sense.”
If only ministers could have a dose of something similar the next time they consider how best to help out the UK’s retail scene.