Harlow & Sons: funding a digital response in a family retailer

Bank debt (£14m, seven years). At roughly 7%, interest is about £1m a year against £4.1m EBITDA - affordable but not comfortable with like-for-like sales falling 5.8%. The dividend covenant directly constrains family income, which is the real constraint on this board. Advantage: no dilution, full control, speed.

Asset disposal. Eight stores might realise £6–9m net. Two problems: it removes the physical network that makes click-and-collect viable - the very model being funded - and it crystallises loss of catchment that is expensive to reverse. A partial disposal of three or four stores with relocation to smaller formats is more defensible, and the proceeds are smaller than assumed.

Private equity majority stake. £20–25m would fund the programme and bring digital capability and discipline, but PE requires an exit in four to seven years and will want board control. That conflicts with the family's stated objective of retaining ownership. It also does not resolve the unanimity rule; it merely transfers the deadlock.

Recommendation

A blended route: £10m of bank debt plus disposal of three underperforming stores, with a PE minority stake only if the family cannot fund the balance. Conditions: governance reform before drawdown; a digital business case modelling store-level cannibalisation, not just incremental online revenue; and a covenant headroom test at −10% like-for-like sales. Debt alone is simplest but leaves no margin for error in a declining top line, and the family should recognise that the funding choice is really a choice about control.

Paradigm

The underlying assumption is 'we are a property-owning retailer; stores are the business'. Digital is treated as a project to be funded, not a business model to be run. Every other element of the web reinforces this.

Routines and rituals. The buying calendar and store-opening routines have not changed; there is no weekly digital trading meeting. Decisions are settled in family gatherings before board meetings, so the board ratifies rather than decides.

Stories. The founding narrative - 'buy the freehold, never sell' - is repeated at every gathering. The two departed non-family directors are already a story about outsiders not being heard, which will deter replacements.

Symbols. Freehold ownership and long leases confer status; the store manager is the hero. There is no equivalent status for digital or data roles.

Power structures. Six of eight board seats are family, and the MD chairs both the board and the family council - there is no forum where ownership debate is separated from management decision.

Organisational structure. No digital or data role at executive level; marketing is a store-support function reporting to retail operations.

Control systems. Store P&L is the only unit of account. There is no customer-level or channel P&L, so online appears as a cost centre rather than a margin stream.

Implication

A £14m programme dropped into this configuration will be absorbed and neutralised. The web must change concurrently: separate the family council from the board, appoint a chief digital officer with a channel P&L, and change the weekly rhythm so online trading is reviewed with the same rigour as stores.

The problem is decision rights, not skills

Two non-family directors resigning in 18 months, one citing 'decisions that never get made', is a governance symptom. With six family members of eight, a unanimity rule on disposals and an MD chairing both the board and the family council, there is no forum where an executive decision can be taken without family consensus. External capital will not fix that; it will make the deadlock more expensive.

Recommendations

1. Separate the family council from the board. The council debates ownership objectives - income, legacy, dilution tolerance - and appoints family directors; the board runs the business. The MD should not chair both.
2. Reduce family directors to three of eight and appoint two independents, one with retail digital transformation experience and one with property. Publish a board skills matrix.
3. Rewrite the constitution so property disposals below a defined value need a board majority; reserve unanimity for sale of the company or change of control. This is a one-off constitutional amendment, best negotiated calmly now rather than during a cash crisis.
4. Create an executive digital committee - MD, CFO and incoming CDO - meeting weekly against a channel P&L and a rolling 13-week cash and trading forecast.
5. Address succession explicitly, offering the next generation either an operating role or a non-executive route, not both by default.

Test of success

By the next AGM: a three-year digital plan approved without a family veto, one independent director appointed, and a written decision-rights matrix. If the family cannot accept these, a PE majority stake becomes the more honest route - better to conclude that deliberately than to discover it under covenant pressure.