Katie Linsell and Thomas Buckley report in Bloomberg:
Once upon a time, Brand Britannia was the poshest of soft powers. (But) the list of struggling members of Brand Britannia is long.The value of the U.K.’s most recognizable names dropped to $28.4 billion this year, from $38 billion in 2007. The advent of Brexit exacerbates the situation. Making up for lost ground is tougher amid increased competition from companies in rising economic powers in Asia. Darwinian economics engulfs the bastions of Brand Britannia. (And) the hands-off legacy has allowed many iconic companies to be turned into subsidiaries of overseas rivals.
Once upon a time, Brand Britannia was the poshest of soft powers. Many of the names in its pantheon continue to glow with prestige if not profit, including Rolls-Royce, British Airways, and Burberry. But others have faltered or fallen. Thomas Cook Group Plc once sold vacations to Winston Churchill, but on Sept. 23 it crashed under the weight of its debts. The company declared itself insolvent—and left thousands of customers stranded abroad. Their repatriation by the U.K. government was the biggest rescue of citizens since the evacuation of troops from Dunkirk in World War II.
The list of other struggling members of Brand Britannia is long. Luxury auto manufacturer Aston Martin Lagonda Global Holdings Plc is a clunker for shareholders. The company has lost about two-thirds of its market value since January and is now worth just under £1 billion ($1.23 billion). In retail, billionaire Philip Green’s Arcadia Group Ltd. has had to shutter stores, including its Topshop clothing chain in the U.S. British Steel Ltd., which provided materials for buildings such as the Petronas Towers in Kuala Lumpur and those in New York’s Hudson Yards, blamed Brexit uncertainty and high business costs as contributors to its collapse in May. The value of the U.K.’s most recognizable names dropped to $28.4 billion this year, from $38 billion in 2007, in a ranking compiled by branding consultancy Interbrand.
The advent of Brexit—the most severe test of the U.K. economy in decades—exacerbates the situation. But the problems predate the 2016 referendum results that propelled the divorce from the European Union. “Business conditions for U.K. companies are the weakest in about seven to eight years,” says Suren Thiru, head of economics at the British Chambers of Commerce. “Some of that is Brexit, but there are other factors as well, like a weakening global backdrop and domestic cost pressures.” And a particularly British brand of Darwinian finance and commerce makes everything harder for even the brightest brands.
Aston Martin, for one, is navigating the risk of a no-deal Brexit and possible U.S. tariffs as the debt-laden carmaker burns through cash. As it struggles, the company’s lenders are demanding credit card-like interest of 12% for providing new funds, and S&P Global Ratings cut Aston Martin’s credit grade to a level described as “currently vulnerable.” The company is betting on the upcoming launch of its first SUV to boost cash. Aston Martin declined to comment.
House of Fraser and Debenhams, once popular department stores with shops on London’s famous Oxford Street, have had to be rescued by investors. They’re victims of the decline of brick-and-mortar retailers in the U.K. as consumers turn to online shopping. The shift has already claimed British Home Stores—which saw all its department stores closed in 2016 after 88 years in business—and the almost century-old entertainment retailer HMV, which declared bankruptcy at the end of 2018 and was bought by a Canadian company earlier this year.
A British brand needn’t be high-end to succumb to market and financial pressures. PizzaExpress Ltd., the 54-year-old chain that’s ubiquitous in every urban zone in the U.K., is preparing to start debt talks with its creditors as an ambitious expansion into China weighs on its cash flow. Its competitor Prezzo closed 94 restaurants last year. Meanwhile, celebrity chef Jamie Oliver’s chain of restaurants filed for insolvency in May. A spokesman for PizzaExpress declined to comment.
Failing companies can expect little sympathy from the U.K. government. Prime Minister Boris Johnson declined to intervene in Thomas Cook on the basis that “it sets up a moral hazard”—that is, it would establish a precedent for throwing good money after bad. The survival of the fittest, after all, is part of the country’s intellectual heritage. “The U.K. culturally has always been reluctant to bail out companies because, probably more than any country, it believes in the efficiency of the marketplace,” says Chris Higson, a professor of accounting at London Business School. The government also stopped short of rescuing British Steel, despite its past prowess in projecting the prestige of British enterprise abroad. Outside of exceptional circumstances in the U.K— such as the state bailouts of Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc during the global financial crisis—British governments have adhered to a doctrine of corporate survivalism borne out of the Thatcher era.
That stands in contrast to other European economies such as those of France and Germany, where state-brokered rescues of national champions are more common. While Thomas Cook’s collapse grounded flights and obliterated thousands of jobs, its German subsidiary, Condor, is still operating because Chancellor Angela Merkel’s government provided an emergency loan. The Italian government has supported several rescues for its national airline, Alitalia.
The U.K. government does little to shield big, local names from takeovers. An attempt by the Hong Kong Stock Exchange to buy the London Stock Exchange disintegrated not because the U.K. government opposed it, but because the deal just wasn’t good enough to upset a merger the LSE was already negotiating with Refinitiv, which is partly owned by U.S.-based Blackstone Group Inc. Earlier this month, the British government said it was leaning toward a private equity buyout of Inmarsat Plc, the country’s largest satellite company.
Making up for lost ground is tougher amid increased competition from companies in rising economic powers in Asia, says Rebecca Robins, a consultant at Interbrand. The Thatcherite hands-off legacy has also allowed many iconic companies to be turned into subsidiaries of overseas rivals. That’s been true for years. In 2008, Tata Motors Ltd. of India bought Jaguar Land Rover—once part of conglomerate British Leyland—from Ford Motor Co., which had owned it since 1990. Cadbury, the iconic British candy maker, has been a wholly owned subsidiary of U.S.-based Mondelez International since 2010. In 2012, Hong Kong conglomerate Trinity Ltd. bagged Savile Row tailor Gieves & Hawkes. In May of this year, India’s Reliance Brands Ltd. purchased Hamleys, one of the world’s oldest toy retailers, with its flagship store on London’s Regent Street. Hamleys, which once displayed giant Playmobil figures outfitted as the Queen’s Guard at its stores, had been something of a hot potato since 2003—owned by an Icelandic investment company, a French toy retailer, and a Chinese footwear conglomerate. Unilever, the maker of British staples such as Marmite yeast spread and Colman’s mustard, is a rare example of a business successfully fending off an unsolicited takeover bid.
But even the most famous of the remaining independent brands have problems. Rolls-Royce Holdings Plc has struggled to produce aircraft engines at the pace required to meet Airbus SE’s order book. Flag carrier British Airways Plc, which is celebrating its centenary this year, has been locked in weeks of negotiations with striking pilots.
Some of the country’s most cherished names have been able to turn their fates around. Burberry Group Plc galvanized demand for its trenchcoats and handbags by hiring designer Riccardo Tisci, who’d previously invigorated Givenchy by forging alliances between the storied French couture house and pop culture icons such as Beyoncé and Kim Kardashian. And Diageo Plc, the maker of Johnnie Walker Scotch whisky and Guinness stout, has buoyed sales in key markets such as the U.S. after years of underperformance by selling new flavors with a bourbon feel, such as Red Rye.
Stormy Brexit politics does have its silver linings. There has doubtlessly been a negative impact on business, with the pound losing almost a fifth of its value against the dollar since the 2016 referendum. But the cheaper currency is also an opportunity for outsiders seeking to do business in London, which remains—for now—among the world’s leading creative and financial centers, says Robert Jones, a brand consultant at Wolff Olins. “It’s a complicated picture because—looking at Britain from a political perspective—there is an intellectual response, which is, ‘These people are mad, what are they doing?’ It’s tragicomedy,” Jones says. “But at an emotional level, there’s still huge connection to the appeal of some of our brands and the quality of our services.”
But as the Thomas Cook debacle shows, emotions can go only so far toward saving a failing company. As Darwinian economics engulfs the bastions of Brand Britannia, all that remains of many revered names may end up as relics in the curated design collections of the Victoria and Albert Museum.
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