Final Collapse and Lessons Learned

Hello and welcome to Toast, the BBC radio four series which celebrates incredible brands, incredible products that reach dizzy heights, only somehow to still end up Tast I'm the BBC business journalist Sean Farrington with me is entrepreneur. Sam White, who honestly doesn't know what we're about to discuss. It means her responses are the real deal. herer conclusions at the end are based on what she's just heard. And this time we're checking out the place where Britain bought its noteepads, its gift wrap Bestie cots Hello, Sam. Are you one of those that goes to the high street for a bit of a stationary purchase a bit of a for somebody's birthday. No, that is not my sort of Saturday afternoon activity, but I do understand that some people fondly do that. Well, our topic today is paper chase design led darling of the High Street, known for its original and extensive range of greeting cards. but of course, there was all that stationery, the wrapping paper, the gifts, the art materials as well. The retail change story began in nineteen sixty eight when the first shop was opened in London by two former art students, Judith Cash and Edward or Eddie, Pond. Eddie died in twenty twelve, but we can hear from two of his children, Chris and Rebecca, Pond, join us now. Welcome to Toast you Pair. Thank you so much for your time Thank you. H. Rebecca, I mean, he'd already launched a business. Is that right called Polllypops productroducts? Yeah. he'd worked for the Read group. He was like the design director And he started this work of creating big cardboard toys and table chairs and for kids and like pop up frints wrapping papers and I think paper chase was a vehicle for that product And that was where this poolypops product was all going to be sold. And he went into partnership with Judith Cash. She was great buyer and she had a fantastic eye for product. Denmark, from Italy, from all over and just put this whole thing together, the two of them. ye. Back then, Chris, Paper Chase had three shops, all of them in London And you worked in them as teenagers. What were they like those stores I started working in the Totten Coret Road one when I was fourteen in nineteen seventy four doinguring summer holidays and with tends And it was a great place to work. it was full of art students. It was just like an Aladdian's cave of art really What do you remember about them, Rebecca? I think the main thing that I remember were these fantastic windows The window dressers created the most incredible windows that enticed people in They had all these garlands, the sort of Danish paper garlands and huge round great paper sort of mobiles, then you'd have a whole wall of wrapping papers every type of print. you can imagine. a lot of famous people used to come through the door. I mean, we went from M Blanc pen had to sort of pop art posters, art books. Just a beautiful array of merchandise. Which celebs stick in your mind Well, I do remember serving Elaine Page and her friend and somebody coming out and asking her for autograph I remember serving Terry Wogan. This he looked up and there he was with a big handful of wrapping paper at a pound each Yeah, really expensive wrapping paper, but fantastic wrapping paper. You couldn't get it anywhere else. So that's why everyone used to turn up there Chris, your dad sold the business before it became the international chain that so many people are aware of today Do you think hed been? Proud to have seen where it got to Yeah, I'm sure he was proud to see it all and everything. You know, he didn't mention P Jase a lot. I think he it was a It probably a sad chapter in his life when he actually had to sell it and just carried on with the rest of his design work. I mean, it was just a part of his life. He had other businesses And we just got on with it really. Rebecca Yeah, I think he would have been pleased with himself. You know, it became this huge brand that everybody knows. and one of his thingsings was like making beautiful design accessible for the general public. you know, Like he wasn't an elitist in that way. So Paper Chase changed hands, we think a few times before it ended up in the ownership of W H. Smith in the mid nineteen eighties and back then Smith's own various businesses. He had the DIY chain, do it all If we didn't do it at all unt sting that on the list. Our price music as well. If you've not heard our episode about our price You know where to check it out on BBC Sounds. we're joined by Timothy Melggan who worked for WH Smith and became Paper Chase's general manager. He ended up running Paper Chase under different ownerships for well over twenty years. Timothy, Hello. Thank you so much for joining us on Toast. Well it's all great to be here. How was the business doing when you became Genal manager at WH Smith At that point, they developed to about twenty seven shops within the UK and it was losing money But they made it pretty clear to me to select a team and that we should turn it around and try to align it much more carefully synergistically with the rest of the WH Smith's group. So in nineteen ninety six, we had WHmith reporting its first loss in a couple of hundred years It had beun selling some of its specialist divisions, including Paper Chase. And so at this point, you led a management buyout. So effectively, you and your colleagues bought it. whyy did you do that We'd succeeded in turning it around. It was then making about a million pounds. We'd reduced it to about nine stores, but we'd still been able to keep that sort of magic of A a small business, So thinking of something in the morning and doing it in the afternoon, and also driving through the creativity and design something that was very different to anything else on the High Street So you became the chief executive I became the chief executive at that point Yeah. What did you then do with the greeting card side of the business that actually maybe made Paper Chase a little bit different to everything else that was out there? What we did differently with greeting cards is that we bought the only multiple that bought by design rather than by range So we specifically source from between forty and fifty suppliers within the UK and overseas. Explain that. When you say buy byy design and not range, what do you mean by that? I mean up to seventy options for one single supplier. Right. But what we did was to buy individual cards across a whole range of different suppliers that fitted what we wanted to do with the overall range which can cover special occasions or general things like birthdays or just blank greeting cards And our smaller shops carried about five hundred cars are larger shops carried about five thousand cards. So Paper Chase employed its own in house designers as well, but did you also bought cards from other suppliers. We did and One of those other suppliers was a small business Jelly armchair, Liz Fulkner runs the business with her sister Kat who designs the cards. Liz, how did you end up supplying paper chase The buyers from Papertace were fantastic at sourcing product and they had their eyes on Etsy. We were selling a small range of cards that Cat had designed on Etsy including one which was a little Avocado driving a car, The caption was he may be small and green, but he does avocado. And they I think we need to say that a little more slowly, don't we? say he may be small and green, but he does avocado. That's we get a very good idea of the creativity unions is to have. So what happened then So then the buyers from Paper Tast got in touch and they ordered a range of nine cards. It was I think about twelve thousand units, something like that And that's how we jump started our business. We were like, right, let's make a go of this when we got that order in from paper chase. We felt very, very lucky. and I think when we were at trade shows, we realized what a big deal it was for us to sort of start our business that way was Amazing Kat was super excited. I mean, we still got the photos of us in the Tottenct Road flagship store, you know with her with first line of cards in there. So it was really exciting and it was especially exciting because she'd just come out of Art collollege where Greetings cards were slightly looked down upon by some of her professors. so it really felt like she'd won. Is there a decent profit margin to be made on Greeting cards? It's volume based, basically with Greetings cards. so the more you can afford to buy the cheaper the unit cost is And then it depends on where you produce them. So we always produce in the UK, but you can get a better margin if you produce somewhere else sometimes. But yes, there is a good margin and the greetings card industry is phenomenally strong in the UK. So Timothy, Paper Chase may be best known for the cards, but were they the biggest seller in store? No, Stationy was the biggest category seller in the store, followed by greeting cards followed by followed by gifts, followed by gifF wrap Gift wrap Do people need that much choice when it comes to gift wrap? Do they want it? Yeah, they do. and actually rather strangely, we did a little bit of research In the end, to some extent, you buy the one that you dislike the least. In paper chase. In paper chase. You buy the one that you dislike the becausecause you have such a fantastic range. There's no point going anywhere else because you know There's something here for you. The risk you and your colleagues took in buying paper chase seem to paid off when you sold the business to the American bookseller Borders in two thousand four, you stayed on as Chief executive I did. I mean, they'd invested in the business before then a minority stake. And as our business grew with them and they put us into more and more of their stores around the world in concessions, it was perfectly obvious that they were going to be the obvious exit route for our then privateity departments. And so did you have your concessions in border stores? So we started those in ninet well, as soon as they came into the UK, we opened with them And but we also started in the States in ' ninety nine. D that work out well? Yeah, it worked out very well. Because six years after buying Paper Chase outright Borders It eventually went bankrupt. It did. And we were worried because we were doing so much business within their bookstores. In individual stores we're takaking close to a million pounds. This concession work. Yes So we watched very carefully as we could see what was, unfortunately happening to borders. so we knew which towns and cities we needed to move and open our own standalones as quickly as we could So Having done one management buyout in the past. Yeah Tothy and his colleagues managed to buy Paper Chase again through a second management backed by a private equity company called Primary Capital, which became the majority owners. Sales and profits were hit by the closure of border stores which sold Paper Chase products. So in areas where they'd performed well, The management team set about opening paper chase stores, replacing those lost sales within eighteen months. So Timothy, you leased these shops rather than bought them You inspected every location yourself before going ahead. Why didd you do that Well, I'm a property person originally. But secondly, I always think that if you're a retailer It's the one thing you can't change. You can't change the position of the shop So you have to make absolutely certain that you've got the right shop in the right market, the right size, the right location within the street Each investment is expensive not just the fit out cost, but the commitment you're making on the rent and rates So If we have a look at the company accounts for back in twenty fourteen fifteen, we saw that sales or turnover was up seven percent year on year to over one hundred two million pounds. profit up thirty odd percent to over nine and a half million pounds What made Paper Chase so successful at this time? Because you know when we're talking in the mid twenty ten s, this wasn't necessarily a straightforward time for the high street wasn't But I think what we were able to do to differentiate ourselves from a rather a busy market and be very clear about the direction that we were trying to take the business and sticking to this thing about innovation, creativity, design led value for money. the cheapest on the market by no means, by no means, but just absolutely sticking to what our customers wanted. Sam. Fantastic. Obviously I love that you brouought it back by the way in that circumstance. I love those stories because again, you know, management team committed to the business, culture strong, you know the model that's right for it It does show that if you get those things right, the business will survive even veryy challenging high street environments Paper Chaser doubled its outlets to one hundred and twenty five and counting. It was seen as the place to be stocked as we've been hearing, by card designers loved by its customers. So why would those customers slip away, leaving the business in dire trouble It's twenty fifteen Paper chase on course for another great year. The accounts again, let's have a look at those later showing those sales up by another eleven percent, profits up by another quarter Timothy Private equity firm that owned the company. What did they want to do with Paper Chase at this point They given us a target of five years to get the EBITDA two to ten million EBIDA is basically profit before you take away all tax and depreciation charges and that sort of thing And we achieved that. In fact, we got to very nearly eleven billion, and they'd always said at that point they would try to exit So we knew it was going to happen. And anyway When you're owned by private equity, you're always for sale. So if we have a look back at the newspaper cuttings from the time, primary capital, these owners They were after one hundred fifty million pounds. Timothy shaking his head having a chuckle in the studio at that number there. They cancellled the sale after bidders failed to offer what they were seemingly terming the right price at the time. So why Does that become a problem for you and the rest of your management team, you know Well clearly things are going well in the shops Retail businesses are inherently unstable you have to build up a credible brand with a credible offer that can take your customers with you. But if you get it wrong, if you get it wrong, one season, particularly in a fashion driven business like ours was, They will tip off And when they talk about one hundred fifty million, I mean, there's no way we were ever going to get that We got a very good offer which would have been a very good return for the investor. Anyway, they decided not to take it, which is entirely their right to do. And then of course, you're stuck because what do you do with the business then You've got a business which is performing well You've got a management team which has delivered. But you've got to make a change because otherwise you can't go back to the market to try to sell it again for years So they decided to change the management team. So Prior to that change in management though, the business' performance had dropped quite a chunky amount by the time we got to twenty sixteen, seventeen. Absolutely. that's over a twelve and a half month period. But a big fall in profits? does that a fall in profits? show thing was maybe quite going right with the way it was being run? I think you're right. I mean, I think what had happened was that The failure to sell which have been, I mean, going through a sale process is very traumatic for the entire business, let alone for the management team that's trying to drive it And although we really tried to keep our eye on the ball, do you always get bit a bit of a flicker So we saw then in twenty seventeen eighteen The business made an operating loss just over four million pounds Yeah. And when we look at those accounts around that time, There was talk of a decline in footfall. so fewer people hitting the shops in those UK stores, cost challenges as well, store rents, rates. True multich channel and multinational brand was what the business was attempting to transition to. but that was seemingly that was quite costly. I mean, everybody was investing more in e commerce. and we had our own website, but we also sold through Amazon and various other businesses. But our product wasn't ideal for that, and we didn't get the level of traction that people were expecting But it was then in twenty eighteen the management team was changed. So It had been changing since to twenty sixteen. Right. So turbulent times at the top a new chief executive was brought in. So you became deputy chairman at this time Was that tough I suppose it was when you spent that long building up a business with a team And we were a pretty solid team And then to have to get rid of your colleagues and then somebody else come in. it's not easy Around this time, many retailers were under pressure from rising costs, the intense competition, the rise of online rivals, all of that Paper Chase's losses deepened even more at this point. So there was an operating loss in twenty eighteen nineteen of twelve point three million dollars. And then Paper Chase went ahead with one of these CVAs a company voluntary arrangements. So closing loss making stores cutting rents as well You were involved in the negotiating of that. Did it feel successful to you in retrospect, we probably should have gone deeper. I mean, I don't like CVAs. I think they're a very artificial way to try to keep businesses afloat Although of course, you can save quite a lot of jobs It is the people who really suffer are property companies Sure there are some huge ones, but equally, you're taking shops of individual families, individuals who own particular shops and you're going to them and saying, you know, we're going to stop paying you rent Well we can only pay you ten percent of our turnover or something like that. and it's not an easy thing to do So as it was going through this process of restructuring those finances, Paper Chase made another loss of around twelve million pounds and then keenlenness of Tast will be very aware of this timeline. This is when COVID hit and all the shops were closed during successive lockdowns, which meant it could only trade online. So missing out on a key trading period in the run up to Christmas, no extra funding forthcoming to keep it going. The company then went into administration in january twenty twenty one. So the administrators blamed a number of factors, including the increased fixed cost base of its stores, fewer customers, heading to those shops. they were switching to internet shopping. dozens of stores were closed, hundreds of jobs were lost Most were saved and Paper Chase survived because it was acquired by a lender, Pmera Credit. So Paper Chase kept going online and through a smaller number of stores. So around ninety out of one hundred twenty five or so. Still got Liz with us, Liz Vulkner from Jelly Armchair. Liz, what did that mean for your business at that time We were owed quite a lot of money at the point that paper chase went under around about twenty thousand pounds, which for us was a a lot of money And at the point where they went into administration, we were offered a small percentage of was out. on the condition that we would trade with the new company on the same terms as we had with the previous company And it's not something that we felt that we could do because that would involve us having more supply bills and We wouldn't want to be in a position where we couldn't pay our suppliers and we at this point didn't trust the new paper chase to be able to pay us in the sixty days. So we would have to wait two months having been paid a fraction of what we were owed. resupplying and then waiting to find out whether we were going to get paid for that new order. So we decided not to carry on stocking them at that point. So just to be clear on this, You were owed money Were they still selling your cards? Yeah, so and this is the case for a lot of small publishers. There's a group of us ve gone through this alltog. So Basically, we were never paid for the product and it was sold to the new company And it was still on sale in the shops and for A lot of us, that was causing extreme financial hardship with tiny companies. It has an immediate knock on on your day to day life. And so that was incredibly difficult. It felt like them selling stolen product You can dress it up however you want, but that's certainly how it feels when you're a small publisher in that situation People might be surprised to know it is standard practice for a purchaser to acquire assets including the stock. not be liable for the company's historic debts. So I would ask how they can claim that those assets are theirs if they've never been paid for is very hard to understand as a small publisher that suddenly that's legal and allowed that they can sell product to the new company that's never been paid for. What proportion of your business are we talking here that was impacted? At one point in our existence, we were about ninety percent reliant on paper chase, but through twenty twenty, we'd been working incredibly hard to grow our e commerce. so it was less, I mean down to sort of sixtycent seventy percent It was viously extremely damaging and also it was coming at a point in COVID where we were also up against it like everybody, I think, was at that point. Now we put some of these points to the administrators's PWC and a spokesperson from there told us. We recognize that this outcome can be difficult for suppliers, particularly where their products continue to be sold following the administration However, as administrators, we have a statutory duty to act in the interest of creditors as a whole and must follow insolvency law This case is consistent with UK insolvency law and is not a situation unique to Paper Chase. Now within eighteen months or so, Paper Chase was sold again to a private investment firm. They had it for six months before trying to sell it but failed Chase back in administration again And this time, none of the stores or even the website survived. that meant around nine hundred people lost their jobs. The administrators pointed to retail sales not recovering to those pre pandemic levels. Online sales were declining, soaring inflation during a cost of living crisis as well. Tesco bought the brand in twenty twenty three january twenty twenty three, which is why stationery carrying the Paper Chase name is still sold. Tesco supermarkets today Timothy, you weren't there at the very very end, but you left Paper chase when it went into administration the first time in twenty twenty one So why do you think in the end, those stores the website did end up toast I think once the customer is starting to move away from you It's very, very difficult to get them back. And at the same time, all the financial ratios were working against the business. Do you think there was something you could have done a bit earlier along the way? Yeah, well, as I say, I think we probably should have gone slightly deeper on the CVA. I mean, the property guys wouldn't have been at all happy, but I think we could have done that And I think we should have stuck to the belief that it was design and creativity that drove the business which was, I'm afraid lost with a change of the management's team. Paper Change did have a website but online competitors had emerged who for little more than the price of a stamp. would let customers send personalized birthday cards direct to their recipients. Meanwhile, with Paper Chase, customers would have to pay a standard delivery fee of up to three pounds ninety five to get a card sent to their home, thenen they'd have to write it, then buy a stamp. then go to a postbox to send it. It was all a bit slower and much more expensive by twenty twenty two when there's a cost of living crisis. I mean, could Paper Chase have adapted to that world a little bit quicker? It's a very good question, that. My feeling is no. I just don't think it's appropriate for paper chase customers. What they want to see is to be able to select across a very wide range of products almost at the same time and pick out the individual images and designs that they like best at that moment. And I think to do that online as it is now, was extremely difficult to do And if you look at the inroads that the online retailers have made to the British greeting card industry, it is pretty minimal Sam Based on what you've heard, what do you think was the point where Paper Chase was entering the point of no return. It's really clear that the crystal event was the sail that fell through I think that's for a number of reasons. We talk about the retail sector. It is unforgiving. It's premiership football. You have to be on the money on every single metric in order to be able to survive because the margins are so tight, The competition is so high. But if you lose the confidence of the team and, you know, the sale process falling through. I know what it's like when a team's working towards a sale and everybody's going for that goal. It's like going for the preremiership title. you know, everyone's on it, they're focused to then have that sort of taken away from you, I should imagine the morale dipped massively in an environment where you can't afford that to happen. And so the wheels start to fall off, things start to go wrong and then you just get hit by COVID and everything else. it would be hard enough in a normal set of circumstance. So I would say absolutely loss of confidence firstly in the team and then from the customer's perspective would be the call on this one. What's the lesson you take from this, then Private equacity has a place in business. I think it's very difficult when you combine a creative culture led business with a machine that is there just for the purposes of creating high levels of EBITDA and then selling. to be clear, So high levels of profits highigh levels of So private equity is very, very clear. I buy you for a pound, I want to sell you for three pounds in a few years time And that can work in transactional businesses. But when you've got emotional businesses, businesses that a lot of the team culture is really critical, there can come a point where those two things just don't align This is where sometimes the wheels fall off because the desires of one group of people are different to the desires of others and yeah somewh Thank you very much for your thoughts. Big thanks as well to our guests, Chris Pond, Rebecca Pond, Liz Vulkner, and Timothy Melgund Next time on Toast, a very different sort of paper product. We're checking out the hard and scratchy Lou roll many people remember from their school days. Isel medicated toilet paper. How did it survive into the twenty first century Toast was presented by me, Sean Farrington and produced by John Douglas. You can find all our previous episodes on the Sliced Bread feeed on BBC Sands Toast is a BBC audio North production for radio four and BBC sounds I'm Gemma Gander and for BBC Radio four and Shadow World This is stolen years. More than two decades ago, Andrew Malkinson was found guilty of a crime he didn't commit There's a massive hole in your life when it's been filled in with ering Now in twenty twenty six, another man has faced a jury of his peers. On trial for the very same crime Andrew spent years of his life imprison for. I'm fifty five. I was thirty seven when I went in. it's damaging Dven by Andy's passion to see the system held to account We follow him as he tries to build back a life. And we discover how Paul Quinn came to finally be convicted Subscribe to Shadow World Stolen Years on BBC Sounds