T.J. Hughes was acquired by JJB Sports in 2002, but sold 18 months later to a private investment company. Nine years later Today in 2011 it was announced it was going into Administration.
It was surprising for a company which seemed to be doing well in the discount clothes and consumer hardware business and had grown by 20 stores since 2003 when it was acquired by Silverfleet Capital Private Equity.(1)
However three vital aspects caused their downfall: Cashflow caused by overstocking; withdrawal of credit insurance for suppliers, after Hughes’ battle to secure working capital, and increased competition from Peacocks, Primark, Matalan, TK Maxx, but also by the traditional food retailers Sainsbury, Asda and Tesco moving into clothing and consumer goods.
There are five competitive forces that determine profitability: Suppliers and their bargaining power, substitutes or threats, buyers and their bargaining powers, potential entrants and the rivalry existing among existing competitors.
The collective strength of these five competitive forces determines the ability of firms to earn, on average, rates of return on investment in excess of the cost of capital. T.J Hughes fell foul of many of these forces.
In those areas where the five forces are favourable as in pharmaceuticals, soft drinks, data-base publishing, many competitors can earn attractive returns, but in some areas rubber, steel and video games, few firms command attractive returns despite the best efforts of management. Industrial profitability is not a function of what the product looks like or whether it embodies high or low technology but of industrial structure.
Mundane industries/companies, like T.J.Hughes can be profitable, whilst High-Tech computers and cable-television are not profitable for many participants.
The year 2011 as well as T.J. Hughes, saw the demise of the Faith Shoe Chain, Officers Club, Oddbins, Home Form (Moben kitchens/Dolphin bathrooms), Habitat and Jane Norman.
Liverpool was once the home of retail department stores: Blackler’s, Owen Owen, Littlewood’s, Lewis’s, and T.J. Hughes, but are now only a name.
In September 2012, JJB Sports followed T.J. Hughes into Administration.
(1) Hughes’ Gross Profits rose about 50% from £3.6m (2003) to £7.9m (2004) to £12m (2006). The 2007 Pre-Tax of 5.1m to January 26th was up from £1.2m the previous year, with operating profit up 299% to £2.9m for year to January 2010.