There is an elephant in the room and it is the size of a supertanker. It has the word "crap" written large down one side and it is impossible to ignore. It's the four-letter word that cost Gerald Ratner his business, his home and very nearly his sanity. Even now, 15 years on, there's no getting away from that speech, which has gone down in history as one of the great corporate suicides of all time.
For those too young to remember, it was spring 1991 and Ratner was addressing the Institute of Directors at the Royal Albert Hall when he foolishly described a £4.99 sherry decanter and glasses as "crap". He then went on to discuss an earring, which, he claimed, "cost less than an M&S prawn sandwich and probably wouldn't last as long."
"Looking back it was a mistake. But, like most disasters, it wasn't one huge bungle but a compounding of smaller errors and pieces of bad luck that would prove catastrophic", says Ratner.
... like most disasters, it wasn't one huge bungle but a compounding of smaller errors and pieces of bad luck ...
The first was sending a draft of the speech to his fellow directors. One quite innocently suggested he should put in a joke or two because people liked his jokes. "I'd made that joke about the sherry decanter before and it had always gone well," he comments. "I left the Albert Hall thinking, 'great, the speech is over, no problems. It all went well, everyone laughed'," he recalls.
In hindsight, his second error was sending out a copy of the speech to all the national newspapers – although it was common practice at the time. "The next day I saw the coverage. It really was a disaster, as bad as you can get. I know it sounds ridiculous, but I was a bit upset that my speech had gone down so badly when I thought it had gone so well. But then I didn't realise the repercussions it would have for my business."
This combined fatally with his third piece of bad luck. The country was in recession; times were hard and ordinary folk were suffering. The red tops were pursuing an anti-fat cat agenda and Ratner had offered himself up as easy meat.
I was a pariah, quite frankly, and I felt the only way the business could go on was if I cut all ties with it.
The rest of the press picked up the story and the Sun made a campaign of it, crucifying him day after day. For instance, Ratners used to sell a gold chain that was marketed as unbreakable "so they tied it to a tree and to the bumper of a car and drove off and of course it broke", he says. "There were stories like that every day about how shoddy our products were. It just became a nightmare. I couldn't believe what had happened."
Six weeks after the speech, sales started to collapse. Ratner had started in the family business at 16 and had taken over as chief executive in 1984 when it had 130 shops and was losing £1m. He transformed it in seven years into an empire of 2,500 outlets and 25,000 staff with profits of £121m.
His comments wiped an estimated £500m off the value of the company and turned those profits into a £122m loss. "One minute I was retailer of the year, the next I was the biggest idiot that ever lived," he remarks.
His infamy worked in his favour as his return to business generated lots of publicity.
Ratner soldiered on at the helm for 18 months, but it became apparent that the only solution was if Ratners group had nothing to do with Ratner the man. "I was a pariah, quite frankly, and I felt the only way the business could go on was if I cut all ties with it," he says.
He was wiped out financially. He had not long before borrowed money to buy more shares in the company because it was doing so well and had been landed with a large tax bill. The shares plummeted from £4.20 to 7p.
He became very depressed. He turned to therapy and tried antidepressants, but what really sorted him out – in more ways than one, he says – was cycling. Ratner rode for six hours a day every day for six years. Listening to him talk, the journey was mostly downhill.
The next day I saw the coverage. It really was a disaster, as bad as you can get.
The turning point was setting up a health club in Henley in 1997, spurred on by his interest in fitness. His infamy worked in his favour as his return to business generated lots of publicity, "albeit with all the usual jokes about me," he observes. He sold it for a tidy profit in 2001. It was an enormous confidence boost. "At first, I never thought that I'd ever make any money again or that anyone would join my club or have anything to do with me," Ratner comments.
Its success was what he needed to draw a line under his depression, and the money it generated enabled him to go back to his first love: selling jewellery. Ratner set up www.geraldonline.com in 2002, now Britain's biggest online jeweller, with projected sales of £20m next year.
Again his notoriety produced heaps of free publicity, but this had its downside. A venture to set up a concessions business with one of the big department stores was cancelled at the 11th hour. "I think they were frightened off by my name," he says. "I think the chairman said, 'Gerald Ratner? Jewellery? We don't want to be tarred with that brush,' and they suddenly pulled out." But the online business goes from strength to strength, so he is clearly not bothered.
"Doing a Ratner" has now become business parlance for foot-in-mouth disease and it is the name of his first TV show, which airs this autumn on Sky One. Ratner is using his experience of bouncing back from disaster to help other businesses.
That elephant may never go away, but its owner has learnt to live with it.
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