Mica managing director speaks to DIY Week to explain the reasons behind the decision to place the company in administration last week.
Belinda Barnard: "Firstly and most importantly the failure of Mica (UK) Ltd has been a blow to all the members and suppliers alike, the staff and Directors of the business are devastated by it.
The decision to launch a member owned warehouse was taken in October 2007 after every avenue open to the group had been explored, from continuing with the incumbent wholesaler, finding a partner both from within the industry and from outside the industry, merging or associating with another group, buying or partnering an existing wholesaler, or setting up a Mica warehouse from scratch, either on our own or sub-contracting to a third party logistics company.
Those people who we spoke to about these ideas will remember that we were looking for a solution which would carry the group forward to give flexibility and stability to the consumer promotions. These promotions have been the lifeblood of the independent retail members for 13 years and allow low cost consumer marketing for the suppliers reaching hundreds of thousands of households every month, driving sales of their products and those of other suppliers to the Mica stores.
The projections were realistic, the first year of trading would produce a loss for the business, the investment and costs associated with a new venture were significant, and then as sales grew and members established an advantage in terms of buying in single quantities and level of service being tailored to individual businesses, we anticipated a break even situation in year two followed by a profit in year three.
What was not anticipated was a worldwide financial crisis followed by an economic downturn, simultaneous with another dreadful British summer. These events meant that even the most supportive Mica members found that they were buying less than they had been doing and so something had to be done to improve our position. We cut our overheads, and in the same way that many businesses have had to reduce costs, this meant losing good people, affecting real families which was painful but necessary. Some of you will remember that this started in July 2008 when we did not replace our Marketing Manager who started her maternity leave for a year, followed by a restructuring in the accounts department, and in October 2008 came the redundancy of the Midlands Retail Development Manager. These savings were not enough and at the end of the year we came to the conclusion that one of the staff directors must go, all three offered themselves and in the end Neil Hoy was made redundant (with only the equivalent of statutory minimum redundancy) and the company took on a self employed National Sales Manager with decades of experience who recruited 5 sales agents to grow the turnover of the Mica Vault.
Mica approached other groups in the industry whose members would have seen an advantage by buying from the Vault, and offered a consumer marketing programme tailored to their members. This offer was unfortunately rejected by one group because they were too busy at the time to consider this for their members, another very sadly failed to come to a group decision.
During this time Mica faced some difficulty with certain branded suppliers who, after being encouraged not to supply the Mica Vault, refused to put their products through the distribution facility. This meant that as customers to the stores asked for specific brands these had to be ordered from a competitor and inevitably, to meet a minimum order, other purchases had to be made with these products and Mica missed the sales.
Other direct suppliers have seen the group advantage and after opening up the Mica account, and seeing distribution of their products soar, then tried to take the members direct, cutting Mica out. One even poached a member of staff after we had opened up scores of new accounts on their behalf and the members were producing a six figure annual turnover from an almost standing start.
Some members bought everything they could from the Vault, some did not support the venture until recently, and some never bought anything at all. This was expected although disappointing.
Mica could have continued to trade, we could have run up additional debts, we could have got to the position where we were not able to pay our suppliers. As can be seen by the actions Mica has taken all along, doing nothing is not an option, hiding our heads in the sand is not our way, taken the necessary actions when it was right to do so.
Inevitably we came to the point of needing to obtain additional financing for the business. We produced what we considered optimistic, realistic and pessimistic projections and looked at ways of improving our bottom line. These projections did not facilitate us obtaining additional funding, so we took advice from professionals in the field and we looked at all the options that were available for us which could have allowed the company to carry on but one by one these were eliminated. A report was prepared for the National Executive, Mica's retailer led board by a specialist turnaround, recovery and insolvency practitioner. After studying the contents of this report the board came to the decision that Mica (UK) Ltd was not sustainable and the Board took the difficult decision but necessary decision to place the company in administration immediately, the rest, as they say, is history.
There are a number of points that are important to note;
The commissioned report stated clearly that starting a new business to follow on from Mica would produce the best payout for the creditors.
No supplier has received preferential treatment.
The staff directors were willing to become redundant alongside their colleagues at the point of the Administration.
The retail directors themselves decided there was a need for a Mica going forward and they put up funds to carry on a Marketing group themselves and their fellow members with the intention of becoming a co-operative.
The Mica staff directors have made plans for a new business as requested by the retailer members, the success or otherwise of this new business will depend on the number of members committed to the new business and the willingness of the suppliers to work with the group going forward.
Mica has worked tirelessly on behalf of members to provide them with the tools to attract and retain new customers for their stores, with consumer marketing delivered to the door of their local population, retail development and training, conferences and trade shows.
Suppliers have benefited from the group we have helped their growth in business with Mica members. We have helped suppliers to get closer to independent retailers in terms of understanding their needs, helping to balance their costs with service to members, getting feedback on product ranges and NPD and providing a vehicle for low cost consumer marketing. Over 13 years we have taken responsibility for our members' debts and on many occasions have paid suppliers for products that we never received payment for.
In the long term, would dispersing a group of like minded retailers really help anyone, when, over the last three decades, twenty thousand hardware shops have closed their doors never to open again?"