Pacific Retail Group

Stefan Preston, it has to be said, has an office many men would kill for.  Above his desk is a large framed print of a woman in sexy pink lingerie that could have been lifted from a soft porn magazine. And there is plenty more where that came from.  The clean white walls of his spacious office feature quite a few framed images of gorgeous girls in gorgeous knickers that, in any other company, would probably land the occupant in trouble with HR.

In fact, it's hard to know quite where to look when visiting Bendon's flash new headquarters on the outskirts of the aerotropolis that now dominates Mangere. Almost every surface is decorated with an image of a naked or semi-naked woman - some larger than life-size.

"There were some moments early on that were interesting," Preston grins. Like the time one of the models in a lingerie show took exception to the chief executive slaving away on his laptop while she strutted her stuff. She grabbed Preston's computer, thrust her boobs in his face, and cooed: "What are you doing that's so important that you're not looking at me?"

Five-and-a-half years after taking on the top job at New Zealand's favourite lingerie company, pert breasts and firm buttocks no longer faze the 44-year-old. In fact, you get the impression the saucy side of the business is a bit wasted on Preston, who has done such a superb job of trying to understand his overwhelmingly female customers that he probably knows far more about women's complicated relationships with their bodies than his own wife.

He was originally a structural engineer who, after completing an MBA at Stanford, somehow ended up being Eric Watson's fix-it man for companies as various as U-Bix, Cogent Communications, Whitcoulls and Pacific Retail Group. And, ahem, the dotcom disaster that was online retailer Flying Pig.  A much more revealing insight into his psyche than his office art is the pile of management books stacked on his impeccably tidy desk. They include, of course, Jim Collins' Good to Great, as well as rather more dreary titles such as Customer Experience Management and The Experience Economy.

His children's masterpieces are also proudly displayed, and the kids - who are primary school age - are in fact one of the main reasons he announced to staff yesterday that he was leaving.  "I've given it a fair shake and I've achieved what I set out to do," he explains. "You have to sit there and say 'I've got to commit myself to the next five years and the sort of life that will represent'. I've got young kids and, realistically, it's going to be more of the same now. The back's been broken, we've built the infrastructure, we've broken into the markets we needed to, we've developed a profitable position in those markets, and now you have to take a deep breath and run a different game to get that benefit out.  "And it requires me to spend more and more time in the Northern Hemisphere and so on. There are probably people in the world who can do that job better than me because they've got more experience and more focus and more connections in those markets."

A global search is already under way for a new chief executive, who might even be based overseas. It's unclear whether it will happen in the short term, but it certainly looks as though yet another iconic Kiwi brand might eventually be headed offshore.  Could New Zealand really be about to lose Bendon? "It depends how you define New Zealand," Preston replies.  The turnaround in Bendon's fortunes in recent years is indeed a textbook example for other New Zealand companies of how to go global.

When Watson's Pacific Retail Group took over the company in 2002, by a somewhat messy manoeuvre, it was in a "reasonably parlous" state, says Preston.  Watson had originally invested in the company because he could see it had enormous potential. "Clearly it hadn't had anything spent on it. It had been through five pretty tough years of manufacturing and exporting and it had been one of those businesses where people had tried to rescue the profit margin by cutting costs, and of course the costs they cut were the very costs that support the revenue - things like training, and so on."

Its warehouse was old-fashioned, and management worked in an executive suite with big windows, while the rest of the staff toiled in a semi-air-conditioned space.  "We were based out in East Tamaki, and I don't know what vintage the building was, but it looked like it hadn't been touched since the 70s. The computer system was 12 years old and, if something went wrong with it, people would switch it off at the wall, and switch it back on and pray. There was only one person alive who knew anything about it."

What the company did have, however, was some strong brands, including a potentially huge partnership with Australian supermodel Elle Macpherson.  Preston fell into the top job after getting involved in doing due diligence for Watson. He took over temporarily when managing director Hugo Venter parted ways with the company, and after a few months decided he wouldn't mind staying. 

Unlike most other turnarounds Preston has overseen, Bendon was complex. It not only designed and made its own products, but also sold them through various channels in various countries, including wholesale, third-party retail, franchise stores, its own shops, and discount outlets.  On his first day, he got a letter from Bendon's largest customer, saying it would no longer be stocking the company's flagship brand, Elle Macpherson Intimates. And Macpherson herself was not happy that sales of the brand were declining, while private label products were growing.

It was clear what had to be done: he needed to stabilise and fix the domestic business, then build the infrastructure to support growth, then grow the business internationally.  First off, it was a matter of working on some fast-moving lines and sorting out delivery issues. This had a "surprisingly quick" effect, he says.

Working on Macpherson took a bit longer. The Aussie icon told the Australian Financial Review recently: "I explored other avenues before I decided to expand with Bendon. But I chose the company because it has a young attitude, it is interested and open to my ideas. It doesn't have brand image baggage."  One of the tricky issues was working out how to develop the Elle Macpherson brand without having her continue to be "The Body" who modelled the products.  "I guess what we thought is, if the brand is dependent on her being in the photography, then we're in trouble, because she's not going to be in the photography forever," says Preston. "But if Elizabeth Arden can be dead and her brand is alive, then it doesn't really matter."

The answer was a deliberately controversial ad campaign which, Preston admits, was "almost queasily voyeuristic". The campaign was spectacularly successful and won a swag of awards in Australia and Britain (where Bendon spent just £70,000 ($199,000). Even now, he says, there is strong demand for the Elle Macpherson brand in countries where Bendon does not yet sell.

Hiring the right people was also a crucial part of the strategy. Almost the entire senior team was replaced.  In order to turn the business from a manufacturing-led culture to a marketing culture, he hired marketers with a background in fast-moving consumer goods. An enormous amount of research was done to improve the company's retail experience, for example. Initially, its flagship store, Bendon on Broadway, existed just to build the brand, says Preston. But all its stores have now been revamped as separately themed, upmarket boutiques with excellent service and customer-friendly changing rooms. The stores won the fashion, apparel and footwear category in the Top Shop awards last year.

The next growth spurt required another change, to a more design and marketing-led approach. In other words, rather than asking consumers what they wanted and giving it to them, the company had to use its own knowledge of the industry and its customers to create products no one had yet thought of, like the Bendon sports bra. The latter approach has required a much more collaborative culture, and has meant the company has undergone two cultural transformations in just five years.  However, Preston is now very happy with the team that's in place.  "The core group of people here work together really well. We felt we were on a great adventure - this plucky, irreverent group of New Zealanders who just want to have a go, but with the brains and experience to make the right calls."

Bendon's determination to break into the hypercompetitive United States market is a case in point.  "You've got to start out with a bit of recklessness," he says. "You've got to be willing to get on the plane and give it a go. But you won't get anywhere unless you're fully committed to it. A lot of New Zealand exporters think they can develop their brand overseas through distributors, and not really fly anywhere and not really put any staff on the ground. They see some orders come in and think they can build a business, but all that is is a bunch of retailers looking for something new. Unless you're willing to be on the ground and commit, it's not really going to happen."

It also goes without saying that you need to have a unique selling point. In Bendon's case, he says, that is a surprisingly uncommon blend of comfort and creative design. Most lingerie, he insists, either looks good but doesn't fit, or fits but doesn't look good.  It took a year of listening, networking and radically transforming what it was doing in the US before the company's patience began to pay off. And again, clever and inexpensive marketing was crucial. One of Bendon's stunts was to clad a 16-storey building on the Long Island Expressway with a giant billboard during New York Fashion Week. The billboard gave the impression that the brand was much bigger than it was - it also helped that a planning violation was committed, which meant that it made the TV news.

Bendon now sells in several top department stores in the US, and has an office in New York that also services Canada. But its initial efforts did require bravery on the part of the board, he concedes.  "I think a lot of boards lack the vision ... You can't write a business plan that tells you exactly what's going to happen. You just know you've got to reach a break-even position in one of the world's largest markets. What you do with that later is going to be subject to what you learn, but you have to have the willingness to commit to get to that level."

That said, Preston admits he's deliberately kept a low profile during his tenure at Bendon because of some of the risks the company has had to take. Its biggest hiccup was when it introduced its global enterprise resource planning system, intended to integrate all its data and processes into a unified system. He's glad it wasn't a public company at that point.  Other infrastructural investments have included a $14 million state-of-the-art distribution facility at its new headquarters in Mangere. The 7000sq m facility, which opened a year ago, handles up to 1 million packages a month. The company also has a warehouse in Seattle, and China.

So far, all the company's growth has been funded from retained profits. "Since we've grown the business we've been able to lever it up as well, so it's been reasonably efficient."  Five years ago, Bendon's turnover was around $80 million, and the kiwi was hovering around US40c. Last year turnover was $154 million, and the kiwi was around US70c. More than two-thirds of its products are now exported, and that's all organic growth.  In the previous companies he's been asked to turn around, the task has been relatively straightforward, says Preston: "You replace most of the management team, fix up all the basic operating parameters, put a bit of leadership into it, think up some fairly basic ideas about how to market it, and off you go."

But Bendon has been much more interesting, he says, because the possibilities are almost endless. "The company is in an interesting position now because it's developed a global reputation, and it's done that on the back of successful retail, off the number one position on the floors of some of the top-level department stores in Europe and the US. There is no theoretical limit to how you want to grow it, because you can take on the whole world if you want to - the only limit being your creativity and ability to come up with products that are differentiated in a meaningful way."

But unlike some other local export success stories, such as Icebreaker clothing, there is actually nothing about Bendon that is intrinsically Kiwi, other than perhaps its design aesthetic and its attitude, he muses.  Its sales in Australasia are run from Melbourne, and its European sales are run from London. It also has a chain of retail stores in the Middle East, run by an Arab partner.  As a result of its latest licensing agreement, with top British fashion designer Stella McCartney, it will be exporting to 16 countries from the beginning of next year, including Italy, Germany, France and Russia. Only 200 of its 500 staff worldwide are based here.

Preston admits it has become increasingly difficult to find in New Zealand the skilled staff the company needs, simply because New Zealand no longer has any apparel industry of any note. "In New York I can hire the people I need just like that."

Which is ironic, given the company has been hailed as the future of manufacturing, whereby thousands of low-skilled workers would be replaced by high-skilled ones.  He insists that the country is still better off than when Bendon employed hundreds of machinists on low wages. "Now it's full of marketers and designers and product engineers, and the value per capita that we're generating is far greater."

But by the same token, he concedes he can already feel the centre of gravity in the company moving north, especially now that it is establishing a design team in New York.  Hence his desire to finally end his relationship with the London-based Watson, and find another local challenge in which to immerse himself.  "The one thing that would attract me to going overseas is a more interesting, more scalable, more remunerative business environment. But I love this country. I was born here and I just love living here. I love the outdoors, the sea and the fishing and the boating and the mountains and the hiking and skiing, and I think my children love it."

Between running Bendon, and keeping fit with various sporting activities, he is involved with New Zealand Trade and Enterprise's Beachheads programme, which helps exporters break into new markets, and also Better by Design, which is obviously design-focused. They are both fantastic programmes, he gushes, for companies wanting to grow.  While he has found the experience a little depressing, because of companies' conservatism and New Zealand's lack of commitment to exporting, he has also been encouraged by some "tremendously cool" examples of companies doing some "really amazing" things, like Icebreaker, Pumpkin Patch, and Phil and Ted's buggy company.

And it upsets him that New Zealand seems to lack role models for people who've been able to create intrinsic value and successfully export their wares.  "Our business heroes tend to be people who are just ripping off public assets, or rearranging the deckchairs on existing companies or whatever, and then taking the money and going overseas."

And he's even prepared to commit sacrilege and slag off 42Below.  "It's a good example of branding, but it doesn't make much money, and now it's gone so it doesn't help New Zealand any more.  "I think we need to have a bit more intellectual rigour about how we judge a business that's good for New Zealand or not."

What we need are more Icebreakers, he enthuses.  "I'm quite passionate about businesses like that and I think there are more businesses in New Zealand that could blaze that trail as well. But unfortunately many of them are stuck with owners who do not have the skills, experience, commitment or capital to take them any further than they have."

In the creative industries, in particular, there are many companies that hit $10-$15 million in revenue, then stop.  "I could name eight companies like that. Each one, I believe, could be turned into a $200 million business, but they've got the wrong owners, the wrong management ... "  At the risk of sounding a little like Linda Clark, he is keen for his next project to be working alongside people "who believe in the vision of New Zealand, of growing this country, and contributing to this country".

He is, after all, a cerebral fellow. While he was able to create the intellectual stimulation he needs through Bendon, "I don't see any reason why I couldn't create it through some other project, and I can afford to spend the time working on that - and who knows what will come of it?"  So far, he has nothing specific in mind. But he is also clearly ready for a new, uniquely New Zealand challenge.  "My passion is New Zealand and I look around and think, 'What if I had some spare time and I could go and look at solving some of those problems?'

"It's just so exciting to me to think I could learn how to take some New Zealand company and learn how to make it a global business. What about the other ones out there that I could work on? I have just no idea what form that would take, but I think that's just an interesting thing, and I need a new project and something to get excited about."  Because frankly, stars in their bras no longer cuts it, it seems.

Bendon - a brief history
1947: Ray Hurley, a demobilised naval officer, joins forces with his pattern cutter brother Des to found Hurley Bendon. The new company offers lingerie that can literally "bend on" to the body, freeing women from heavy wire, steel and bone foundation garments.
1963: Introduces stretch strap bras and stretch bodyfashions.
1964: Sales top $1 million.
1966: Becomes the market leader in intimate apparel in New Zealand.
1977: Bendon range introduced to Australia.
1982: Publicly floated on the New Zealand stock exchange.
1986: Begins manufacturing in China.
1987: Merges with Ceramco Corporation.
1989: Strikes licensing agreement with Australian supermodel Elle Macpherson.
1999: Announces nearly 400 staff will be laid off as manufacturing moves to Asia.
2000: Buys the insolvent retail chain Bennett & Bain, as well as the Fayreform brand.
2001: Breaks into the United Kingdom.
2002: Management buyout fails. Acquired by Pacific Retail Group for $59 million.
2004: Revamps its retail stores as upmarket themed boutiques.
2005: Breaks into the United States, Canada, Middle East, and Hong Kong. Turnover reported to be $113 million.
2006: Auckland headquarters moves from East Tamaki to Mangere.
2007: Buys chain of independent retail stores in Australia. Strikes licensing agreement with UK fashion designer Stella McCartney. Turnover reaches $154 million.

John Milford, managing director of Kirkcaldie & Stains Limited, made the following speech to this morning's annaul meeting.

As this is the first time I have addressed the shareholders it is appropriate I should give you some background on my retail career to date.

I started in retail as a management trainee over 30 years ago. I worked for the Allders department store and Duty Free group. My last assignment for Allders was running their flagship store in Croydon in the UK. During my time with them I covered all aspects of running department stores.

I was invited to come to New Zealand as an executive manager for Farmers Trading Company. I then joined Pacific Retail Group where I held the position of Chief Executive Pacific Retail Limited. When the business was sold I spent a little under 2 years with the Repco group, prior to joining Kirkcaldies I was general manager Repco Australia.

I joined the company 10 months ago, at the time we had a number of challenges facing us which had been identified. I could tell from the start that the business was fundamentally sound and did not need major changes in direction to bring it back on track.

The first issue we faced was excess apparel stocks, a fashion clearance was organised and implemented at Shed 11 very successfully which cleared the majority of our aged stock. The other outcome was the positive cash flow from the exercise.

Prior to making any changes to the business it was important that we obtained feedback from our customers. A comprehensive market research exercise was undertaken, with qualitative and quantitative feedback. The majority of the information the management was aware of. This project focused and documented the information in such a way that it could be used as a blue print for decisions made. We also asked our cardholders and our fashion customers on our database to give us feedback on our apparel offering. We received over 1000 responses. This feedback has been utilised by our buyers for their buying strategies.

I was taught a long time ago that successful department stores have four key ingredients. They are Service, Selection, Value, and Style.

If we look at each of these Kirkcaldies has a good basis for going forward.

Service - An independent Roy Morgan poll of 12,000 customers ranked K&S as number one for customer service. - We have changed the rosters to ensure that experienced and knowledgeable staff are available seven days a week. - We have reviewed and changed the recruitment requirements. To ensure that all new team members have the right qualities and attitude that Kirkcaldies customers expect. - We have a comprehensive training program focusing on service and selling skills. - We are supporting our wedding gift and personal shopper team, making them available seven days a week. - Even though we have been reviewing costs we have been increasing selling staff on to the floor.

Selection - Kirkcaldies had already over 150 exclusive brands when I joined. This has been expanded with the brief to the buying team that each season we must secure new and exclusive brands. - It is important that we source the very best global brands as customers expect us to have them in the better/best areas of merchandise. - One other area of strength is our New Zealand brands. They are normally a little more expensive but are of a higher quality. This is a policy we will continue. - Two of our latest brands which are now available are Laura Ashley Home and Fashion and a new bed linen concept Lexington. Both exclusive to us in Wellington.

Value We have to ensure that Kirkcaldies gives its customers value for money. We do this by rigorously checking the prices on like merchandise sold by our competitors and will refund any customer who finds a product sold elsewhere at a lower price. - We have recognised the value of our cardholders who support us by introducing exclusive shopping evenings and allowing them the first pick of our sale buys. - I am delighted to tell you that we have opened over 1000 new accounts in the last 10 months and our sales have increased on our existing account holders. - We have not changed our policy on the sales. We still only have two per year, however we have extended them from one week to two weeks. - One issue that the market research did give us was the inferior quality of some of the sale buys. Our new policy is quite simple; we will not buy in for the sale any merchandise that we would not sell on the shelf at full price.

Style Kirkcaldies has its own unique style that has been built over 140 years, our doorman, our pianist, our outstanding service and of course our support of the local community. - All of those easily recognisable Kirkcaldies icons will stay.

- Many of you will have seen this Christmas the Kirkcaldies teddy bear. This was sold to help support a very worthy Wellington institution - The Wellington Free Ambulance. I am delighted to tell you that we have raised $30,000 for them. - We will continue to reinvest in the community that supports us so well. Our focus will continue to be Wellington based.

You will have seen a number of changes in the store. All retail businesses need to reinvest and reinvigorate their brands. This is not something that can happen every five years; it is something that we will do on an ongoing basis. You will experience this in all areas of the store as we upgrade our cosmetic offer to reclaim our number one status in New Zealand. Many of you will have dined in the enlarged and refurbished K&S Cafe the second floor, and seen a number of new retail concept areas in the store. This investment in many cases is jointly funded with our suppliers.

This year will also see us make a major investment in IT with a new POS system and merchandise inventory system.

Whilst we have achieved a lot in a short space of time there is still much to do. Retailing is a business requiring that we recognise our customer's preferences. We source quality products, as many as we can exclusively. We pay the right price for them and we sell the majority at the appropriate margin. We endeavour to ensure that we continue to exceed our customers' service expectations and make the shopping experience unique and memorable.

This is only possible when we employ and retain the right people and in this respect particularly I would like to acknowledge Mr David Knight who is with us today. David has retired after 28 years as the company's merchandise manager. David's contribution was huge and the team will miss him as will a number of his customers. We have been very fortunate to secure the services of Gary Nicholson who is an experienced retailer and senior manager who has extensive buying and merchandising skills.

Given all the changes we have managed to increase our sales for the first five months of the new financial year which were 10% ahead of the same period last year. We have maintained our margins and cost control measures are starting to impact.

My vision for Kirkcaldies & Stains is that we will create a centre of retail excellence which will be unsurpassed in Australasia. I am committed to leading the team with energy, passion, honesty and compassion. We will look to ourselves and our business before we blame others and will always put our customers first.

Graeme Hart and Eric Watson have little in common except that they are both extremely rich and have made recent takeover offers for their listed vehicles.

As the accompanying table shows, the 21st century has been particularly prosperous for both individuals with Hart's net worth leaping from $200 million to $2.75 billion, while Watson has jumped from $110 million to $500 million (the latter figure has recently been revised up from $350 million).

But the two businessmen have travelled different paths to achieve their wealth. Hart has been hands-on, focused and has built a team of extremely competent associates while Watson has been a relatively passive investor with little focus and has failed to build a competent support team.

In addition, Hart has created wealth for minority shareholders in his listed companies whereas a large percentage of individuals who invested in Watson's numerous stock exchange vehicles have lost money.

This is the reason why investors will be hoping that Hart returns to the sharemarket if his bid for Burns Philp is successful. It is highly unlikely, though, that the NZX will see Watson again after he completes the PRG Group acquisition.

There was only the faintest sign of Hart's impending success at the Whitcoulls annual meeting in the Kupe Room, Aotea Centre, on October 25, 1995. No more than 20 or 30 shareholders attended, the meeting was over in a flash and the highlight was Hart's young son making happy noises at the back of the room.

Whitcoulls had just reported a 16 per cent reduction in net earnings to $20.2 million, mainly due to the disappointing performance of the Australian acquisition Angus & Robertson. Hart's 64.5 per cent Whitcoulls stake had a sharemarket value of $170 million at the time (the listed entity was called Rank Group until Whitcoulls was acquired from Brierley Investments in 1991).

The next year, Hart made a successful bid for Whitcoulls, valuing it at $282 million and, shortly afterwards, onsold it to Blue Star for $320 million. Eric Watson was running Blue Star and Maurice Kidd, his long-time business associate, was its financial controller.

In mid-1997, Hart purchased 19.9 per cent of Australian food conglomerate Burns Philp for A$260 million or A$2.50 a share. Three months later, Burns Philp's share price had fallen below A$1 after a poor result and Hart's investment was worth less than A$50 million.

The National Business Review's Rich List estimated that Hart's net wealth had plunged from $200 million in 1997 to a mere $25 million in 1998.

But Hart's true qualities came to the fore during this difficult period. He played a major role in Burns Philp's turnaround, which included the acquisition and subsequent 80 per cent sale of Goodman Fielder.

The country's richest individual has gone from strength to strength and, this year, completed the takeover of Carter Holt Harvey for $3.3 billion. His offer for the remaining 42.6 per cent of Burns Philp, which values the company at A$3.1 billion ($3.7 billion), will cost Hart A$1.3 billion.

As Hart's shareholding in Burns Philp is worth more than A$1.7 billion, the Sydney-based company represents a large proportion of his wealth. If the Burns Philp offer is successful, Hart will obtain full control of nearly A$2.5 billion of cash, a 20 per cent Goodman Fielder stake worth in excess of A$500 million and NZ Snacks, which has an estimated value of nearly A$200 million.

The deal makes sense for Hart and his bankers as he will get full access to almost A$2.5 billion of cash for an outlay of only A$1.3 billion. Hart may also believe the huge amount of private equity money has inflated asset prices and there are limited attractive opportunities for Burns Philp to utilise its cash.

This contrarian approach is an important part of Hart's success, as is his ability to execute deals, make these acquisitions work and attract and keep top-quality executives.

By contrast, Watson is a deal-maker with limited operational abilities and, most importantly, an inability to attract and retain top-quality executives. A notable exception is Stefan Preston, who runs Bendon for PRG.

Watson first became involved in PRG (then called Pacific Retail Group) in 1998 when he made a takeover offer at $1.30 a share. This valued the target company at $59 million. Watson ended up with 73.7 per cent after the two major shareholders, Murray International (58 per cent) and Roger Bhatnagar/Greg Lancaster (12 per cent), sold to him.

Watson made another unsuccessful offer in 2001 at $1.76 a share. This valued the target company at $89 million.

The next year, he made a third bid at $2.25 a share. This valued PRG at $116 million, but Grant Samuel produced a strong negative response after assessing the company was worth between $223 million and $248 million ($4.31 to $4.80 a share).

Watson then turned PRG into an investment company and one of his first investments was a stake in Burns Philp.

Meanwhile, he became involved in several listed companies including RMG (in receivership), Strathmore (now Media Technology), Eldercare (Abano), Advantage (Provenco), Metlifecare and AQL (Certified Organic).

PRG made the ill-conceived PowerHouse acquisition in 2003 and as a result has had to sell Noel Leeming, Bond & Bond and PRG Finance Group. PowerHouse has been a disaster for PRG and the company hasn't paid a dividend under Watson's stewardship.

Watson's fourth offer for PRG at $1.22 a share values the company at only $76 million compared with Grant Samuel's mid-point valuation of $235 million four years ago.

This offer will be successful because the bidder started with 81.3 per cent, AXA has accepted in respect of its 12.3 per cent (AXA effectively stymied Watson's earlier offers) and Grant Samuel now values the company at between $66 million and $107 million ($1.06 and $1.72 a share).

It will cost Watson $14.2 million to acquire the outstanding 18.7 per cent and, in return, he will obtain full control of Bendon, Living & Giving and an unknown amount of cash.

It is difficult to ascertain PRG's true financial position because PowerHouse was placed in administration in the UK this month, the company has not released its March 2006 year annual report and is delisted from the NZX.

The huge spread in Grant Samuel's valuation range indicates that PRG is in a mess and there is much uncertainty over the true value of the company.

By contrast, Burns Philp is in great shape and is relatively easy to value.

Watson's stewardship of PRG has been a disaster yet his net wealth has risen from $275 million to $500 million since the PowerHouse acquisition. The main reason for this is his relatively passive holding in the unlisted Hanover Group. The true value of this holding can only be ascertained when he sells his stake through a trade sale, IPO or to the other Hanover shareholder.

The capitulation of AXA to the PRG offer clearly indicates that sharemarket investors have had enough of Watson. His PowerHouse acquisition was the last straw and he seems to have limited ability to extract himself from difficult situations, unlike Hart with Angus & Robertson and Burns Philp in the 1990s.

INVESTMENT

Worth: $350 million

ERIC WATSON continues to be well known as socialite Nicky Watson's ex-husband - his name hasn't appeared too often on business pages over the past year. His Pacific Retail Group has struggled with UK electrical goods retailer PowerHouse, which was taken to court this year for rent avoidance after closing more stores. PRG's local investments include Bendon and Living and Giving. Watson's wealth has been downgraded from last year because of the poor performance of Pacific Retail.

At press time PRG share trading had been suspended while the NZX awaits the company's annual report, held up while an audit of the $145 million sale of Pacific Retail Finance to GE Finance earlier this year proceeded.

The Warriors league team, which Watson has shares in through his company Cullen Sports, was docked competition points and faced financial losses this year when salary cap breaches were discovered. But Watson said he remained committed to the club.

On a more positive note, Hanover Finance, which Watson invests in alongside fellow Rich Lister Mark Hotchin, remains a very profitable business. Its 2005 profit was up 50% from the previous year at $17.4 million.

Watson now lives in London and is renting out his south Auckland homestead, Westbury Estate, for $6000 a night. The property includes a nine-hole golf course, a tennis court, helicopter pad, 15m heated pool and sauna among its many facilities.

2005: $400 million

It's been part of the shopping landscape for nearly 150 years. Now Wellington department store Kirkcaldie & Stains faces turbulent times. Sue Allen meets new managing director John Milford.

JOHN MILFORD'S time behind the top desk at Wellington's flagship department store, Kirkcaldie & Stains, has been short, but he already has a plan.

Actually, he has three -- short, medium and long-term. No doubt shareholders will be all ears.

Last month, they received the painful news that profit had dropped almost 70 per cent to $290,000 for the six months to February. Worse still, dividends were being suspended.

But it is not just shareholders who are interested in how Kirks fares -- anyone and everyone in Wellington has a view on the store.

Too cramped, great shoes, brilliant sales, wonderful Christmas shop, out of touch, too much make-up and cosmetics, brands being cut without reason. Everyone has something to say about the store.

Mr Milford is undaunted by the task, but then he has more than 30 years' experience running department stores and retail businesses.

In the short-term bag is a "back-to-basics" approach, with inventory control, investment in a new point-of-sale system and improved customer service at the top of the list.

Once you know stock control is largely paper-based, Mr Milford's desire to get a firm grip on what's coming in and going out becomes clearer. He hints that some merchandise areas are likely to be dropped and some expanded.

Christmas 2006, traditionally Kirks' flagship annual event, pulling in people from far and wide, will be massive, he says. Events will also be held "that will be working towards the goal on inventory".

The first event is today -- a "never-to-be-repeated" $6 million clearance sale of back stock at Shed 11.

Small changes are already appearing: the cluttered women's clothing department has been recarpeted, racks cleared and discipline restored.

Among the medium-term issues is grappling with what seems to have been Kirks' problem for a while, a lack of focus on who its customers are and what they want to buy.

Kirks has responded by stuffing more and more into limited space in the hope someone will want to buy something.

It has 45,000 names on databases across the various departments, but the information is not centralised.

No detailed customer research has been done in the past five years.

"Do we know, as a business, who our customer profile and target is? No, not as well as we should do, and we are working on that."

The size and demographics of the Wellington region mean Kirks will always need to have fairly wide appeal, but change is needed.

What Mr Milford has described as "little gems" will also help Kirks in the medium term -- offering better financial products, better marketing and more exclusive brands, and upgrading its Internet business.

Kirks' bottom line gives an idea of how bumpy the ride has been for the store and its shareholders.

In 2003, profits were down 13 per cent to $1.42 million, in 2004 they were down 22 per cent to $1.1 million and last year they bounced back 9 per cent to $1.2 million.

Mr Milford describes the latest half year's 69 per cent profit fall as "not acceptable".

Though he will not comment on his predecessors, he says the results show the lack of a robust plan and a solid foundation.

"This is a terrible analogy, but I'll use it," he says.

"If you look at this business you can't just put a bit of rouge and lipstick on it and expect it to look really good. You've got to clean the skin, lay the foundation and do the makeover properly."

Michael Curtis, one of a group of property investors that in March seized 19.9 per cent of Kirks through LQ Investments, says they are "watching with interest for an improved result over the next year".

LQ's property expertise will be put to good use renegotiating Kirks' two leases soon.

They and the board are also looking at maximising return from the neighbouring Harbour City Centre, which Kirks bought for $29 million in 2002. The rental income from that building has helped Kirks stay afloat.

Mr Milford's arrival certainly provides a sense of history being repeated.

Kirkcaldie & Stains was established in 1863 by John Kirkcaldie, a Scotsman who had served his apprenticeship as a draper, and Robert Stains, an Englishman who had worked in the retail trade in London.

Their first shop was on the historic Bank of New Zealand site, now Old Bank Arcade. They moved to the present site in Lambton Quay in 1868.

Like them, Mr Milford learned the trade from the bottom up. He began his retail career in 1971 as a management trainee with Allders department stores in London. When he left in 1994, he was a director in charge of customer service for 44 stores and 7000 workers.

Allders went into administration in a blaze of publicity last year, but Mr Milford has only good things to say about his time there and credits the company with teaching him how to be a good shopkeeper.

He moved to New Zealand with his family after being shoulder-tapped by the head of Farmers in New Zealand, Terence Delaney.

He is now a fan of what he calls New Zealand's "egalitarian state".

"To have someone on the shop floor saying: `Hey, John, I don't think we're doing this very well', was a bit of a culture shock for me."

Mr Milford joined Farmers as a regional manager for Auckland, but after a management reshuffle he took over as general manager of its 63 stores.

He then spent four years at Eric Watson's Pacific Retail Group, eventually rising to chief executive of Pacific Retail Ltd, running its Bond & Bond, Retail Brands, Noel Leeming, Big Byte, Computer City and Living & Giving stores.

Though he admits he knows nothing about cars, his next move was to car parts retailer Repco, and from there to Kirks.

It was those early days as a management trainee, working in every department from sales tills to loading dock, that taught him the discipline of being a good retailer.

It also gave him what he describes as "empathy" with staff. It would be a mistake, however, to confuse that with sympathy for those who do not perform.

He has come from a background of targets, goals and tangible measurement. "I am a firm believer in performance; in what gets measured gets done," he says.

"If you don't give people objectives and they don't clearly understand them and if you don't help and support and train them, why would you wonder when they (the goals) don't get achieved?"

Kirks does not have a performance-pay system but one could hazard a guess it soon will have.

The real bottom line is that the more profitable a business is, the better it is for everyone, he says, allowing a business to reinvest, hire more staff and pay more to those it has.

His pay package has a healthy incentive-based element and he will have his work cut out to deliver.

But is he confident he can turn the business round? "Yes, definitely.

"My long-term plan is for this business to be here in 50 years' time and for Kirks to stay as a centre of excellence for retailing." AT A GLANCE

John Milford

1954: Born, Portsmouth, England
1965: Cowplain Boys School, Hampshire
1970: Highbury Technical College, Portsmouth
1971: Joined Allders (operators of British department stores) as a management trainee.
1994: Moved to New Zealand to join Farmers
2000: Chief executive of Pacific Retail
2004: General manager of Repco Australia
April 2006: Joined Kirkcaldie & Stains as managing director

Married: to Janet since 1975, has two sons, Jack and James.
Car: None at the moment but wants to buy a Porsche (not new)
Book: Biography of Winston Churchill by Roy Jenkins
Pastimes: Fishing, shooting, reading, history and cars