Success at a rate of knots

Italy is synonymous with the world of fashion, dominating the industry with names such as Gucci, Armani, Prada and... Tie Rack? The quintessential boom and bust 1980s British retailer is now firmly part of the world of Dolce & Gabbana et al - thanks to Simone Frangi and his family.

The Frangis were a low-key family running a company based in Como, near Milan, the centre of Italy's fashion industry. Founded in 1959 by Simone's father, Angelo, it was a high quality textile manufacturer with a specialisation in silk-making, supplying labels such as Calvin Klein and Kenzo, one of many in a cluster around Lombardy.

Then, in 1999, the small firm run by Angelo and his children stepped from the picturesque shores of Lake Como into the bear pit of UK retailing when it bought Tie Rack. "It was a very brave decision, for historical reasons and in the way Italians do business," says Simone, Angelo's 35-yearold son who has headed the family's British acquisition since 1999.

"The Frangi business was very small compared with Tie Rack. Tie Rack at the time had 430 stores and was operating in 27 nations, it was a public company with a very high profile in terms of news coverage. We were coming from a corner of Como with a low profile - in fact, no one had ever heard of us."

Tie Rack certainly had a high profile, but not the sort its new owners wanted. The retailer had become an example of the success and excess of the 1980s, when loud ties and braces were part of the City stockbroker uniform, when greed was good and Britain was supposed to become a nation of shareholders.

Clamoured to buy

No new shopping complex or airport terminal was complete without a Body Shop, Knickerbox or Sock Shop which, along with Tie Rack, represented the new breed of niche retailers invading town centres. When Tie Rack was floated on the stock market in 1987, its flamboyant founder, Roy Bishko, could have sold its initial offering 85 times over.

Queues stretched around the block outside the London Stock Exchange as investors clamoured to buy a stake. As the 80s turned into the 90s and the economy was hit by the worst recession since the second world war, Tie Rack lost its shine. Even when things did pick up, a shift in fashion towards dress-down Fridays and open-neck shirts for dotcom entrepreneurs meant a chain based on selling ties was going to struggle.

By the late 90s, Tie Rack appeared to be producing more profit warnings than sales and its shares - which floated at 145p - had fallen to 35p by the time the company was facing annual losses of £7m. That was when the Frangis stepped in. As one of Tie Rack's regular suppliers, the Frangis already had a good idea of the company's operations. Simone was then the 31-year-old director of sales at the family firm and had dealt with Tie Rack as a customer.

"They were doing something totally wrong, I could see that. They were buying far too much in advance and the range was too flat, far too narrow. You have to give people variety, you have to have diversity and you have to evolve.

"As a supplier it was obvious, because I could see their buying activity and I could look at other companies, and they were buying totally different ranges. We were doing collections for other brand names, so when I prepared a collection I could see the choices available."

The Frangis paid £23m at 43.5p a share to take Tie Rack private in April 1999, with Bishko retaining a stake, and began injecting old-fashioned Italian family values into the one-time stock market darling.

"Coming from Como, it's very small. It's a quite international place because of the fashion industry, but a lot of the companies there are family run, like mine, with my father, my mother, my sister and brother, all involved.

"For an Italian company like ours, to come to London and become involved with the stock exchange, that's quite unusual. And then to succeed, after four years and still be going, that's an achievement."

By 2001 the Frangis' new unit was back in profit. In its latest financial year, Tie Rack boasted eight million customers worldwide, earning £1.8m in pre-tax profits on a turnover of £81m - not Tescoleague figures but impressive in a year when some of its main markets such as airport lounges were still suffering from the effects of the September 11 attacks and the Sars outbreak in Asia.

The new owners cut the number of outlets from 430 to 340 but have since slowly expanded, so there are now more than 370 Tie Racks, including eight in Italy with one in Milan. The irony is that Tie Rack was meant to be part of the new wave of Anglo-Saxon capitalism, tapping the markets for funds and expanding.

Yet Simone sees many virtues in doing business the family way.

"To be a successful public company, you have to go and deliver growth, and you have to do it every six months. You have to do things under pressure, like developing products. Now we can take more time.

"Tie Rack, as a company, was quite healthy because it had a lot of cash. But it was criticised; why it didn't use that cash. Analysts see things differently. They want to see that you've got a good balance sheet and not too much cash, because otherwise you are not sweating your assets, and you have to have good gearing.

"If you are going through a rough time then [analysts] will change their mind and criticise you. As a private company you can take the same path and reorganise without being criticised or having to deliver growth in six months' time."

Would the Frangis consider going public again? "No," he laughs. "Analysts, they want to see growth, and if you have cash they will push you to open more stores, regardless.

"We will open a store if we see that it's good for us, in terms of location or image. We're under less pressure. Otherwise, you raise the money when you go public and then everyone wants you to spend it."

The different realities of running a business here and Italy have at times come as a surprise, Simone admits.

Synergy

"The Italian model is stronger on loyalty, and being family run means there's direct contact by staff with the ownership. Here you have to move on if you want to make progress in your career. In Italy you try to stay inside one company to progress within that company.

"I got a shock when I moved here, because I had staff who I was trying to motivate and they would say to me: 'It's time to move on.' It was a surprise, because you say: 'Why? Are you not happy?'"

Old-fashioned though the Frangi ownership structure may be, the takeover did have the advantages of that buzzword "synergy", a vertical chain of manufacturer and retail outlets.

"The structure of the business was very good, that's what actually caused us to acquire it, because now we are a retailer with a manufacturer behind it. What we've done is shorten the lead time, to work more closely to what customers want, and to have a different approach to different markets, so there's an English look and a German look, and do special products for those countries. And to get repeat orders out very quickly."

Having the rest of your family as one of your company's major suppliers can make things difficult, but Simone says he speaks on the phone to the Como base every day.

"We do buy a lot from them, so we are an important customer to them and they are an important supplier to us, but not the only supplier. We still buy outside, we still buy from other firms in Como. You have to, otherwise you don't get enough creativity."

How does his father react to getting turned down for another supplier?

"He gets annoyed. But we are treated as a separate company. We have to take the best, of course. He understands that."

Part of the change of focus has been to move Tie Rack towards women, so that now sales are roughly split 50/50 between men's and women's items. So why keep the Tie Rack name?

"We definitely thought about changing it. But the awareness of the brand, its name recognition, it is unchallengeable."

How much money would it have cost to reposition the awareness of the brand?

"People have a very clear idea of Tie Rack - it might not be the right one and it might not be exactly what it is at the moment. So one of our jobs is to reposition it and tell them that there's been some major changes."