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Peter Thornton: How an IPO ruined our family business

Peter Thornton gave Campden FB a searingly honest interview about being ousted from his family's business, UK-based confectionery giant Thorntons, in 1987 (continue reading here). An IPO in 1988 was a vehicle through which the family ultimately tried to solve the mounting conflict between four third-generation brothers.

Peter (pictured), who originally opposed the public listing, now gives an exclusive account of the fortunes of the company since the IPO and explains what he would have done differently:

"Thorntons always was and still is a retail business. My father, Norman Thornton, created the style, format, atmosphere and market positioning principles. Shops were designed to catch passing trade with beautiful and detailed window displays. The products had to look mouth-watering, the staff friendly and welcoming, the gift boxes were never over-packaged, the quality excellent and the prices affordable by all.

Dad never wrote any of this down but he told me about it many times and I put it to paper. It was part of the closely guarded family formula for the business. However, a year or two before the IPO we switched strategy to a big element of self-service and pre-packaging. I opposed this move because it was against the formula.

When the IPO occurred the company had 177 shops – I calculated that there were only about another 100 locations available that could be sufficiently profitable. Unsurprisingly, family influence gradually began to diminish and things started to change. A retail business we established in the US that I thought would succeed was closed. The new management bought retail businesses in France and Belgium, where I never thought we could succeed, and eventually closed with considerable loss.

In 1995 my brother John gave up his joint chairman and chief executive role and a new non-family chief executive, Roger Paffard, was appointed. By this stage the company had 263 shops and 286 franchises, near the limit for both in my view. The company made 11.32% net profit (£15.15million). In 1988 it had been 14.37% (£15.22million).

Under Paffard the company began a new expansionist retailing strategy, which changed the size, style and location of the shops away from the family's traditional and successful formula. The new strategy involved rapid expansion, re-location to prime locations and re-fitting the retail outlets, whilst also expanding the production and distribution facilities.

Many of the original principles were abandoned including the once-famous window displays. The retail revolution also meant an increase in retail shops to 410 by 2000; however the net margin reduced to 3.5% in the same year and profit to just £6.98 million.

The failure of this strategy meant Thorntons was forced to hire a new chief executive in 2001, whose big idea was to sell our products to major retailers. This was another move away from the family formula that had allowed the business to flourish before the IPO. We believed this would negatively impact the sales in out shops and it might also damage the brand.

The new professional management has continued and expanded this strategy under the chairman, John von Spreckelsen, appointed in 2006. Sales to other retailers have increased from £18.9 million in 2001 to £56.8 million in 2009.

Since 2004 "like for like" retail sales have been continuously decreasing at an average rate of 3.15% per year when other retailers have been increasing. In 2009 the company made a profit of £6.3million on a turnover of £215 million with a net margin of 2.93%.

It is clear our formula has been broken and ignored. Everything has changed - shop style, retail theatre, display, staffing, location, size, pricing, packaging and product differentiation. The company was historically retail-led, but this appears no longer to be the case and it now seems to lack imagination, flair and interpretation of its tradition in its retail strategy.

The company could have been very different if it had not gone public, if I had stayed and been given the opportunity to developed proper structures to involve the family.

Firstly I would have brought the family together, to build a strong unit; I would have called family meetings, ensured we drew up a family constitution and instigated a family council. From this we could have developed rules for family management succession, selection and communication, among other issues.

We would never have broken the formula without deep and lengthy family debate and we would not have opened the excessive number of shops or created excessive factory space. As a result, the family would have a better, closer relationship and family wealth would probably have increased. I believe keeping a family focus would also have ensured the longevity of the business and the workforce, community and social capital would all be much greater.

Peter's book, "Thorntons – My Life in the Family Business", is published by Tomahawk Press and is out now.

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