Thursday, April 5, 2012
The well-known school bookseller, Wooldridges, has recently announced the closure of key stores in Victoria and South Australia and has set in train an organizational contraction that will see the business centred back on the original Wooldridges operation in Perth. This follows the previously announced closure of several of their WA shops. The announcement reads like the last weary paragraph of a drawn-out saga. Their much-touted national expansion has come to nothing. Their retail presence will be shrunk to a few stores that they’ve acquired over the past 5 years. And they have egregiously failed to create a national back-to-school brand. Their recent poor performance in processing booklists in Victoria has, in fact, destroyed much of the reputation and goodwill that they have paid so much for in their failed attempt to become the big player in Australian school supply.
Where did they go wrong? Was it strategy or execution or both? Why has the aggregation of a number of previously successful small Australian school suppliers been such a dismal failure. The answer lies, unsurprisingly, in their single-minded, hear-nothing, see-nothing drive to impose private equity preconceptions onto an existing market. Rather than unlocking value, they have destroyed it. Rather than investing in and updating the cottage industry business systems that they had acquired, they looked for economies. Rather than hiring and heeding seasoned industry heads, they have ignored advice and gone their own way. Rather than recognizing the prescribed nature of school book purchases, they have sought to create a discretionary retail environment. And the results speak for themselves.
Fulcrum Capital Partners, a Sydney private equity firm, entered the school supply market in late 2007 when they acquired Wooldridges from the Majors family in Perth. The transaction was run through their acquisition vehicle, ESA Holdings Pty Ltd, which took over the management of Wooldridges and set about buying other Australian school suppliers. The goal was to become the dominant national player. They were successful in picking up a number of smaller businesses and looked set to quickly put together a sizable Australia-wide operation. Some of the well-known names caught in the ESA net were Jacaranda Educational Supplies in Canberra, Endeavour Books in Melbourne, and Seelect and Kelly Farm in South Australia. They also acquired Elizabeth Richards, a supplier of classroom non-book materials, in Sydney. They even bought a school photographic business, Fotoworks, in the belief that their pipeline into schools could be used to deliver all manner of products. Many other targets were approached and offers made. So far, so good and heady stuff for the low-tech, dusty world of school bookselling. But throughout this period of frenzied growth, it was starting to become clear that there was no appreciation of the nuances of the school market. We can only imagine the mess today had they been more successful in their acquisition blitzkrieg.
They hired, as their first CEO, Greg Browne, an industry veteran with Australian and international experience. He was a good choice. If anyone understood school publishing and bookselling dynamics and how to profit from them, as books become apps and booklists become subscriptions, it was him. But Browne only stayed a year. Perhaps that was the first writing on the wall. His departure came soon after ESA’s failure to acquire Landmark. Owned by the Porche family, Landmark was Australia’s second largest booklist supplier and had developed sophisticated systems to cope with the intensely complex back-to-school booklist process and which had capacity for continuing growth. They had a scalable business.
ESA clearly undervalued Landmark. They saw them only as a larger version of the smaller businesses that they had been buying – not as the only major player other than Campion in the national booklisting market. Their private equity bias was to see the superficial commonalities in an industry not the nuances. Commonalities make for impressive long-term financial modelling. Nuances are a nuisance. But the school resource market in Australia is riddled with discontinuities and wrinkles: state by state, private versus public, primary/secondary, booklist/class-set/book hire, print versus digital, national and state curricula, and so on. It is a complex market in which the constant changes, inconsistences and local peculiarities provide the opportunity for profit, but, most importantly, in which the only significant profits are made by providing year-on-year, great service to the big booklist schools.
Buying Landmark would have given Wooldridges critical mass and credibility. They would have become a genuine national operator and they would have acquired the people and the systems needed to build a bigger business. Most importantly it would have given them the time to refine their strategies and to create detailed plans for execution. Instead, with Landmark subsequently acquired by Campion, the already dominant market leader, it was virtually game over. Wooldridges had nowhere to go or to grow - other than towards their fixed and whimsical vision of a retail school supply model. Their efforts and investment were focused on building a big, recognisable, high-street brand.
Browne was followed by Tony McKimmie, previously of Lonely Planet, but he too was a short-term tenant. It seems likely that McKimmie was hired to bring in a more consumer-oriented approach; he was someone who had worked in a publishing organization that was built on direct and retail selling. This was where Fulcrum wanted to take the ESA businesses. But McKimmie didn’t last either. Others followed and each came with less industry experience and a heavier retail bias. The idea was clearly to create a household name which parents would go to when buying school resources for their children. A Bunnings of back-to-school.
But, of course, that’s not how it works. Schools choose the resources they want to use. They then put them on a booklist for parents to buy or they buy them in class sets, or subscriptions, themselves. They don’t send parents or students out into a retail environment to browse for suitable curriculum material. The way to success for a supplier of these materials is to work closely with schools to better understand (and to understand earlier) their needs, to have close and trusted supplier relationships (mainly with the key educational publishers) and to have completely reliable systems for ordering and processing the tens of thousands of book and stationery items that go into each crazy back-to-school season. ESA, it seems, just didn’t get it. They are now left with a jumbled group of companies that doesn’t possess the wherewithal to manage the school business they have, let alone to grow it. Maybe a jumble sale is the natural next step.
It is unlikely that Fulcrum would recover much of their investment if they put their ESA assets on the market. There are few buyers and there is no evidence of them developing a mature or even an emerging national brand; there is no evidence of any significant investment in technology or systems; nor evidence of a coherent digital strategy to allow them to profit from the rapid changes that are sweeping through the school supply market. It has been a sorry tale of lost opportunity, except for the lucky few who reaped the early rewards of Fulcrum’s investment in this market. The individuals and families who sold to ESA will be happy to have been paid handsomely for their businesses, but even the most hard hearted of them will feel some disappointment in the way those businesses that they had carefully built over decades have been managed and mismanaged since.