Entrepreneurs: the real bloodbath will be after the Xmas sales

published 28 November 2008

Small businesses are facing the toughest economic backdrop since the 1990s, says the Confederation of British Industry. Jody Clarke asked seven entrepreneurs how they are coping in the downturn.

The online grocer

Jason Gissing, 38, (above) has recently attracted more attention for his past student activities than for his online grocery, Ocado. He was a contemporary of George Osborne's in the now infamous Bullingdon Club at Oxford University, but he's stoic about the press coverage he's received. "I was surprised that something that I had forgotten about from university had become as interesting as it has to so many people."

Started from scratch by Gissing and two other ex-merchant bankers in a one-room office in Victoria, Ocado went live in 2002. It's yet to make a profit, but is growing at 20% a year and is valued at £440m. The recession hasn't yet put shoppers off buying, but Gissing has noticed a change in what they buy. "Our average spend is flat to marginally up on last year", but sales of mince meat, potatoes and rice are up as more people stay in rather than dine out. Other products are becoming popular too. "We were laughing yesterday when we saw that condom sales were up 60%, but we can't decide whether that's because people are staying in more and trying to entertain themselves, or that they just don't want babies."

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He drives a 1996 Peugeot 106 that belonged to his mother-in-law, so Giles Henschel, 46, is not the sort of man to flash his cash. But he's less restrained when talking about ways to solve the economic crisis. "Put a f***ing gag on Robert Peston and the Daily Mail," says the former army officer and founder of Dorset-based Olives et al. "I'm responsible for 35 people's mortgages here, so I want some stability and calmness. But if the buggers in the press keep going on the way they are about the recession... people will panic, and it will become a self-fulfilling prophesy."

From a standing start in 1992, his firm now turns over £4m a year, making and supplying stuffed and marinated olives, olive oil, and a range of other olive products sourced from around the Mediterranean. He has no plans to cut corners on quality, believing that selling cheap olives at knock-down prices would be counter-productive. "Businesses trading down are just commoditising, and there is no value in the proposition. I don't want to buy Tesco beans. I want to open something of quality that makes me feel good." But nor does he see his products as a luxury brand, which will be dispensed with as people tighten their belts. "We just make standard food. No additives or preservatives, just good food." And he's certainly not waiting for the Government to make things better. "I want some firm leadership. But at the end of the day, individuals are the masters of their own destiny."

Sitting at the corner of number 30 Savile Row, Andersen & Shepard has been in the tailoring business since 1906. Known in the 1920s and 1930s as Hollywood's tailor (the firm kitted out Fred Astaire and Gary Cooper, among others), the firm has the designer Tom Ford as one of its most recent clients. But even with a wealthy client base, times are tough, says the company's vice-chairman, Anda Rowland. "No matter how loyal they are, lawyers, bankers and everyone else just don't feel like spending," says the 38-year-old. "A lot of people save up to buy a Savile row suit and think about it very carefully. This is not an impulse buy. So we are definitely affected." For example, "more people are asking what the price of a suit will be, whereas in the past they would be too embarrassed to do so".

It's tempting to start discounting, she says. "But that's not what we do. And we don't have the margins to do so." A two-piece suit starts at £2,900, with 70% of that going on materials alone, mostly sourced from mills in Scotland and Yorkshire. "People want to know where their suits are made, almost every customer asks that question." The work is also labour intensive. "We work on very low margins, with at least four people working on your suit. So people are getting what they pay for. You're not going to make a fortune tailoring suits."

"If you're a pure furniture retailer, times are really tough," says Alex Creswell Turner, 40, of teak-furniture store Lombok. On the cost side, the sharp rise in the dollar hurts anyone importing furniture from Asia, he says. But more painful still has been the slowdown in the British housing market. "Across the furniture industry, I'm hearing sales numbers of between 20% and 40% down on last year" as mortgage approvals and housing sales plunge. "The real bloodbath will be in February and March, after the Christmas sales."

Lombok, which turns over £16.5m a year, is fortunate, in that most of its furniture comes from Indonesia where wage inflation hasn't been as rampant as in China. Plus it has "a very active accessory side. While like-for-like furniture sales are down, accessory sales are up. If you're not moving, a cheap way to makeover your house is to start buying lamps, cushions and art for your walls," he says. "Accessories are now 30% of the business, with like-for-like sales up 33%." In terms of what the Government could do, he wants councils to stop hiking business rates. "Our Tottenham Court Road store [in London] has seen rates rise 70% in the past three years. In the meantime, our prices have stayed the same. That's really hurt." But the downturn hasn't stopped his expansion plans. Lombok has just opened its 19th store in Bristol, and is surviving the storm "as well as could be hoped". He admits the slump was "probably way overdue. Our generation has never seen anything like it before. We're just going to have to stop living on debt."

Andrew Valentine, 34, is one businessman doing pretty well out of the crisis. When oil prices began rising in February, he saw a 30% rise in the number of customers using StreetCar, the self-service, pay-as-you-go car-hire business he set up with Brett Akker in 2002. Now, with credit a lot harder to come by, "we've seen a lot of people either selling their car or just foregoing buying one" and using StreetCar instead. The 40,000 members each pay £49.50 a year in membership fees, then £5.95 an hour for use of one of their cars, parked at different spots across London and five other cities in Britain.

Forget the recession. "Everything I touch is turning to gold," says Simon Woodroffe, 56, founder of the Yo-Sushi restaurant chain. "I count my blessings every day." The son of a brigadier in the Indian Cavalry Association, Woodroffe sold a majority stake in Yo-Sushi in 2003 for £10m and retained the right to a royalty arrangement, widely reported to be 1% of UK sales for life. Not a bad little earner sales hit £50m last year.

Woodroffe has since turned his hand to the hotel business, and his new venture Yotel, which provides luxury short-stay hotel rooms and is currently based in Heathrow, Gatwick and Schipol airports. The aim is to expand into city centres across Europe. "I often go to conferences and find people standing up and saying they did 98% occupancy last year, followed by a round of applause. But me and my partner Gerard Green then put our hands up and say, well we did 250% occupancy at Heathrow and people go what?'. Because we're selling rooms by blocks of hours, it brings people into the same room two or three times a day."

The Bank of England might be slashing interest rates, but for some small firms the cost of lending is actually rising. Last month, Richard Vaux, 44, of Farnham-based PR firm Cobalt Communications, got a letter from his bank, Barclays, informing him that the rate on his overdraft was being raised from 6.78% to 10.78%. A customer of the bank since 1997, "as you can imagine, I wasn't best pleased", he says. So Vaux paid off half his overdraft, to show he was taking a proactive approach to his debt. In return, he asked them to stop the rate hike. "The bank manager is a good guy, I've known him for a long time. But the decision came from higher up. They said no."

So Vaux converted some of the overdraft to a loan, and moved accounts to NatWest. "If you're a small business there is something you can do... Barclays are ripping off small-business customers just when they can't afford it." As for the business climate, Cobalt, which focuses on PR for IT clients, has already cut costs. About a year ago, it became a virtual' firm, a better option than "shelling out £15,000 a year for under 100sq ft" of office space, he says. He's "been through one downturn already", having set up during the 1990s tech boom but warns, "2001 wasn't as bad as 2008".

Jody studied at the University of Limerick and was a senior writer for MoneyWeek. Jody is experienced in interviewing, for example digging into the lives of an ex-M15 agent and quirky business owners who have made millions. Jody’s other areas of expertise include advice on funds, stocks and house prices.