A time of change: Interview with Richard Pennycook

We are delighted to talk to Richard Pennycook, former CEO of the Co-operative Group, and now Chairman of the British Retail Consortium and family-owned independent department store chain, Fenwick. As one of the UK’s seminal retail figures, our interview coincided with his announcement as Chairman of the Retail Sector Council, a joint initiative between the Government and leading retailers. Richard shares his thoughts on his career and his choices as he has gone ‘plural’. He talks openly about the retail revolution, what it will mean in the UK, the winners and losers, and why he is positive the sector can adapt for the future.

 

It’s almost a year since you left your role as CEO of the Co-operative Group. What have been your reflections about your time with the Co-op and its performance since you left?

I look back very fondly on the Co-op and my time there, as the people are terrific. The team I brought together is the team that is now leading it forward and I am so pleased to see that it is continuing to do very well. The food business in particular has made some very interesting progress since I left. The changes that have been implemented were in gestation when I was handing over to Steve Murrells and it is great to see that he has taken them forward.

It is one of those situations where I loved being there, but I also I look back and am thrilled to see it carrying on and doing well.

 

You became CEO at a challenging point for the organisation. What would you highlight as your strategic priorities and your key achievements during this time?

I would say there were three pretty obvious strategic priorities. Each of these had their challenges, but they absolutely needed to be actioned.

The key priority was to make sure the Co-op survived the crisis it faced with its bank as this could have brought the whole thing down. That was immediate and obvious.

The second area was to completely overhaul the governance of the organisation as this had significantly contributed to the difficulties in which it found itself. It was an ossified governance structure that didn’t work. It didn’t hold management to account, wasn’t transparent, and it certainly wasn’t representative of the broad membership of the Co-op. It had to be reformed and I am pleased we achieved that.

The final area was about resetting the purpose of the company. We needed to look at what the Co-op stands for in the 21st century and really give it a chance to thrive again. This began as part of the rebuild phase of which I was in charge, but it will take many years for that to fully bear fruit. I am really pleased with where the organisation is now, but it still is work in progress. I do believe it has certainly set it off in the right direction.

 

“This is about digital and intelligence, and undoubtedly about the way the world works.”

 

Credited with a considerable number of retailer turnarounds throughout your career, what is driving you in your choices in your non-executive roles?

I am not sure there is a career link and I haven’t gone into my portfolio career just to do turnarounds. Throughout my career I have done other things and seen companies grow very successfully. What I want in my portfolio is a variety of fascinating situations and opportunities. I have been very lucky to be able to put together a portfolio with businesses that are quite diverse both in what they do and also in terms of their ownership and governance structures. While they are all consumer related, the key common threads are that all of them are underpinned by very solid values and have in them the sorts of people I really want to work with.

A very wise colleague gave me some advice when I was thinking of going ‘plural’. This person told me that one of the things you deserve at this point in your career is to work with the people you want to work with. That is very much a key part of what drives my decisions. In my portfolio I have a plc, a family business and a company owned by private equity. That gives great variety and some very interesting people to work with.

 

You became chairman of Fenwick when you left the Co-op. Founded in 1882, it has a history of reinvention and commitment to connoisseurship. In a very different retail market today how does it continue to remain relevant?

The heritage is rich and the fact that it is a family business with so many connections gives it a longevity that I think really counts. The Fenwick brand is really well known in the communities where it operates.

In terms of the retail revolution that is going on at the moment, the department store model is under some threat. It is certainly globally challenged, but this particularly applies to department store chains which have high rents to pay and have a so-called long tail of stores. Some of those stores are now possibly now in wrong locations and potentially a bit tired. Fenwick doesn’t have that. We have nine stores, all of which are very well-located, and the family maintained the freehold ownership so they don’t have big rents to pay. This makes them very flexible spaces that we can do things with.

The challenge for us is to make department stores that are relevant for the future and ensure they are places that people want to come to. This will not just be to browse products, but also for great customer service especially in areas such as the beauty hall and with an excellent food and drink offering. All the sorts of things that customers can’t get online are well suited to the department store experience, and that is where we have to concentrate.

 

Fenwick is a family business. Does this mean a different approach is required to deliver change and move the organisation forward compared to other business models?

I think in this particular case it requires a very sensitive and respectful approach. The family has entrusted ‘outsiders’ to take their firm forward for the first time in the forms of myself as Chairman and Robbie Feather who I brought in as Chief Executive earlier this year.

The leadership has previously always been within the Fenwick family, and that is something we need to handle with care, making sure we bring family members along with us and that they are fully approving of our plans. Robbie arrived as Chief Executive in January and as he finds his feet we are making sure that we talk a lot with the family about his plan.

 

As a Chairman in well-established retail and brand organisations what skills, attitudes and experience are you looking for from leaders within the sector?

This is an area I am very interested in and in my role as chairman of British Retail Consortium I also have exposure to a great deal of retailers and their leaders. What is striking in terms of the development of the sector is that our retail leaders have to be rather more rounded people than perhaps they did when I was starting out. The business environment is much more complex and in a positive way it is much more inclusive than it used to be. The old style ‘command and control’ leadership structures no longer work in retail. Our leaders need to be collegiate, show strong values and they must have the intellectual horsepower which gives them self-confidence to operate in that new environment. It is actually more challenging for individuals to entrust their colleagues to get on with delivery than to take control of it all, and that requires a degree of resilience and self-assurance that I like to see in our leaders.

 

Competition is greater than ever in the retail sector, from luxury right through to the discounter markets. Is this level of competition sustainable?

Competition is good for retail. It has always has been intensely competitive and I don’t see that changing. The barriers to entry are low in this sector and that is a very positive thing.

It is clear to me that fundamentally the markets are over supplied with ‘stuff’. Consumers don’t have to expend an awful lot of effort to find what they are looking for. In that oversupplied world, there will be a natural progression towards consolidation; that is a basic result of a supply and demand model over time.

 

The retail sector has evolved considerably over the past decade with greater introduction of technology and automation. Do you believe that this brings more opportunities for the industry or presents further threats of consolidation?

I think it presents both opportunities and threats, but I don’t think we have really seen anything yet in terms of the full impact. We are part way through a commercial revolution. This is about digital and intelligence, and undoubtedly about the way in which the world works. This will have a direct impact on retail and I don’t think we are much more than half way through that. It gives more opportunity for really insightful retailers who want to embrace opportunities and change, but in addition it undoubtedly leads to further consolidation and restructuring in relation to bricks and mortar.

At the British Retail Consortium, we produced a report in 2016 which said that we expect between a quarter and a third of retail jobs to go by 2025* and that really is playing out in front of us. There is a major restructuring of retail going on and we need to deal with that. It is not going to go away.

The last commercial revolution on this scale was in the early part of the 20th century, which no one alive today witnessed. This is both scary and invigorating in equal measure. Our track record of dealing well with the people caught up in the revolution isn’t great. Looking back to the weavers or the agricultural workers displaced centuries ago, reskilling, training and life skills development will be very important.

 

Do you believe that governments (local and national) can be doing more to support the retail sector, particularly on the high street? Is there more that can be done in terms of reskilling staff?

I think it is important to face up to that conversation: it is a reality. There will be a change in the nature of work in the retail environment. Those that will be most successful will be service-oriented companies, which will definitely mean better high-value jobs for people with the calibre to engage well with customers, as well as those undertaking analytic and insights-based jobs. It is not all bad news, but it is certainly challenging. The current Government is much more aware of this than previously.

The announcement of the newly formed Retail Sector Council, which is a joint initiative between retailers and the Government, reflects a commitment to the sector. It is the first time that retail as a sector will have a formal role with Government in talking about the future. I see this as very positive.

More broadly, we have to work closely with governments at both a local and national level as these new trends emerge. In my experience, they are acutely aware of the beneficial effect that retail, in terms of shops and employment, has on local communities and want to support this.

 

What impact, if any, do you believe Brexit will have on the retail sector in the UK?

Fundamentally I believe it will have little impact. The retail sector is extremely responsive and very flexible. Whatever the Brexit outcome, we will respond to it.

There is some risk in the short- to medium-term as consumers start tightening their belts while we remain unsure what the impact is going to be, particularly with uncertainty over tariffs for example. That could exacerbate the challenge for retail, and the economy in general, but in terms of dealing with whatever the outcome is from an operational perspective, I think the sector will adapt fine.

 

Biography: Richard Pennycook

Richard Pennycook recently stepped down as CEO of the Co-operative Group in order to pursue a portfolio career, having joined in 2013 as part of a team that saved it from near collapse. He has over 25 years’ experience in retail, starting with the management buyout of Allders in the late 1980s where he was the CFO of European Duty Free and ran the North American operation for a time.

Over the years, he has been involved in the growth of J D Wetherspoon and the turnarounds of Laura Ashley, Welcome Break, Bulmers and Morrisons. Previously a non-executive director of Richer Sounds, Richard is non-executive Chairman of The Hut Group, Chairman of Howdens Joinery PLC, Chairman of Fenwick, Chairman of BRC and Co-chair of the Retail Sector Council. He is also lead non-executive Director of the Department of Education.

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