The Rise and Fall and Rise of Gerald Ratner

I had a fun evening with Gerald Ratner last week, he was speaking at the Entrepreneurship Society at our school.. Business teachers of a certain vintage and distinction will know the Gerald Ratner story well, at the time it was just about the most remarkable tale of business success and then rapid collapse that one could think about!

From being one of Britain’s most successful retailers - indeed the owner of the world’s largest chain of jewellry stores - a mis-placed joke in a lunchtime speech at the annual conference of the Institute of Directors at the Royal Albert Hall set off a chain of events that sent the Ratners brand into free fall.

The phrase “doing a Ratner” has passed into our lexicon. Just this week the senior executives at the Rugby Football Union have had this damming verdict passed on their work, in recent times the CEO of Nokia was given similar treatment for a “we are doomed” speech

Even the judges on the X-Factor have been given the Ratner accolade in recent weeks because of their poorly scripted spats that have done so much to send the ratings tumbling.

Ratner’s mistake was to diss his own products - albeit in a light-hearted way (it was meant to be a joke at a business lunch) but the unintended consequence was to damage irrevocably a brand in the eyes of millions of customers, aided by sensationally negative reporting from newspapers such as the Sun and the Mirror.

The essence was that Ratner claimed that the reason he sold so much cheap jewellery was simple - the products were crap! Once that was anchored firmly in the minds of consumers, the die was cast and sales and profits dived to such an extent that a £200 million profit in 1991 turned into a £300 million loss a year later.

Ratners was left with debts in excess of £1 billion and he left the business some time later (fired by a Chairman he had appointed!)

You can read about this wonderfully colourful story in Gerald Ratner’s recent book which is the heading for this blog. But you cannot keep a good man down! And now Gerald Ratner runs successfully and profitably one of the world’s biggest online jewellry businesses (Gerald Online).

A few snippets from his talk and the subsequent Q&A.

First the power of email as a marketing tool. Gerald Online sends out half a million emails each week to registered female customers and 200,000+ to male consumers. Email marketing works in this business!

Second, marketing costs are huge in this industry. In a typical year an online jeweller will spend between 20% and 30% of top-line revenue on marketing, one reason why the profit margins are thin but sales volumes are high.

Third, the vast majority of the gold and silver jewellery is sourced from India and retail prices are highly sensitive to world gold prices. The cheap gold ear-rings that Ratners might have sold for £6.99 twenty years ago will sell for £35-£40 now purely on the basis of the soaring world price for gold.

Fourth, the business is incredibly seasonal - jewellers can expect to make money in only one month of the year - December - they have perhaps a six week window to make their money for the year with losses in every other month. Cutting overheads during quiet times is much harder than people suppose.

Fifth, in really difficult times for retailing as a whole, there are plenty of opportunities for “shot gun retailers” or “hit and run retailers” - people who spot empty premises on the high street and who lease them for a few weeks at a time to shift cheap stock. Have a look at your local high street as we head into the festive season, can you find examples of these businesses? Do they look busy?

For those who want a taste of the dry humour of Gerald Ratner here is a link to a recent speech.

And this one