Hughes Electrical has developed a symbiotic business model in which each part of the company makes an important contribution to the overall business. Robert Hughes, MD of Hughes Electrical which won the Best Regional Multiple title in the IBA 2011, told Anna Ryland how he has managed to grow the company at a time when the industry is losing money and the independent sector keeps contracting.
Hughes Electrical celebrated its 90th anniversary in March year. The founder of the company, Robert’s grandfather, Frank Hughes, who was an electrical engineer that “came back from the First World War without the leg and travelled to the end of line searching for the place to settle down.
It was in Lowestoft where in 1921 he founded Hughes Electrical,” reminisces Robert Hughes. At first the company rewound industrial electrical motors for Lowestoft’s fishing fleet but in 1928 Frank bought his first shop where he built and sold radios. Following Frank’s death in 1947, his children took over the company. In the 1960s its expansion began.
Early in his career Robert Hughes worked in the City as fund manager and in venture capital. “In the 1980s I was a bond trader. My daily turnover was £5 million at the time when I was 22. But I didn’t feel fulfilled working there,” comments Robert. “Bored”, he went back to the academic world to do an MBA at the London Business School. In 1992, he joined the family business, to become its managing director in 1996.
The business portfolio
Today the Hughes Electrical business has five areas of operations: retail, rental, service, online and B2B. Its retail brands are: Hughes, Apollo 2000 and Bennetts.
In 2009, Hughes acquired Apollo 2000 and in 2011 Bennetts Retail, adding to the company’s portfolio several large out of town stores. “Apollo gave us a critical mass in white goods, and with Bennetts we gained a vast volume in the technology products.” Hughes operates 34 stores, Bennetts – four and Apollo – eight.
The company’s shops are located in East Anglia (Hughes and Bennetts), West Midlands and North West (Apollo 2000). The stores of the three brands have different identities and design. Their market positioning is also different. “While Hughes stores sell CE and domestic appliances, eight Apollo 2000 stores sell more white goods than all other stores put together. Through Bennetts with its specialist buyer we entered the fast moving world of IT. It became clear that the CE market has moved a lot of volume into the technology market so we needed a foothold in this market.”
The culture of the company has been defined by the family motto: ‘own your freehold, rent your equipment and keep the customers loyal. The staff is essential to everything.’
“I am still protecting the balance sheet of the company by controlling our cost base, protecting the revenue by owning a freehold and having a contractual income from rental. And our staff is key to delivering this service. Our mission statement is: to generate profit by inspiring customer loyalty through value added services,” explains Robert.
Hughes Electrical’s commercial division, Trade Electrical Direct (TED), is a business to business electrical supplier. Its main customers are councils, schools, universities and electrical wholesalers. It has been awarded the contract of the preferred supplier of kitchen appliances (rent and sale) to the Olympics 2012. The department’s sales this year are predicted to reach two million units.
Rental also plays an important role in the company’s operations. It accounts for 17% of its income, and 35% of profit. The customers of Hughes’ rental services are predominantly young couples and people who wish to ‘test’ the latest TV technology but cannot afford it. “In the past the main customer advantage of the rental was service; now it’s ability to replace the products every year,” explains Ashley Shorey-Mills, the manger of the out of town Ipswich store. Robert Hughes adds: “Rental pays for our service infrastructure. The two businesses are symbiotic. Rental is also a good way of using the products that have been returned from the website sales. Each part of the company has a role to play in the overall business. Each business scratches the back of the other.”
“Online is a means of selling products outside our geographical locations. It helps us to clear poorly selling items in the store and the products at the end of their lives. Online also drives business to our shops.”
Hughes Electrical employs more people on the service side of the business than in retail. “We have 110 service vehicles – used by engineers, installers and delivery men. We employ over 200 service engineers and installers.”
“We charge for delivery and sell warranties on top of manufacturers’ warranties.”
The Hughes Electrical team
The company employs almost 750 staff. The youngest are the installation personnel. The stores in smaller locations usually employ older staff.
At Hughes Electrical the management motivates their staff by keeping them well informed and involved in the business. In the back office there is a display of store’s performance in every area and charts of staff’s progress towards their targets and current priorities. “The target for the group is broken down to a target for the store (and store manager) which in turn is broken down to the targets for the sales people. However the staff has also to achieve a satisfactory standard in their appraisal,” explains Robert. “We conduct an active appraisal system for staff and have regular staff meetings in which we discuss the performance of the store, the competitive situation and what we need to do to improve it. We are open with the staff about the profitability of the company and the profit margin within the sales. If staff share this knowledge and is aware of the problems they can help us to find the solutions for them.”
Staff training includes weekly briefings, Saturday morning training and evening sessions delivered by manufacturers. The employees who become proficient in certain areas sometimes deliver training in these competences. In 2011, the company won the Investors in People Silver Award.
Staying on top
“Business at Hughes Electrical is about relentless planning and reassessment,” says Andy Pallant, sales director.
“We are always trying to look ahead,” explains Robert. “Even before the switchover we started planning for the post-switchover period, considering what is going to replace these switchover products which brought extra profit. Our profit this year (2011/2012) will be close to the best we have ever had. And the best ever results we achieved last year. The like for like sales in Hughes shops are 7% up. We constantly reinvest our profit, for example by buying out freeholds for the properties which we previously rented. We now own 33 freeholds.”
Ashley Shorey-Mills adds: “The times are hard but we don’t feel a dramatic change in our operations because we worked hard when it was easy, so now it’s not as tough for us as for other people.”
“We dominate the electrical market in nine East Anglian towns and we have to keep the customers in these towns by giving them a good service,” says Robert. “And have to add value to the transaction. We also have to be competitive so we have our own website with low list prices; but then on top of it we add delivery charge, the warranty etc. to remain profitable.
“In our market one challenge leads to another: falling sales volume and prices in the CE market lead to the challenge of reinventing ourselves in the domestic appliance category. Dealing with this requires us to have larger stores to accommodate these products.”
The independent business
Robert admits that the present situation is very tough for everyone in the electrical industry. “Both manufacturers and retailers are losing money. However, the market will always need independent specialists although it won’t need as many of them as it was the case a few years ago. The current customer market cannot support all existing channels; including the internet, the mass merchants, the supermarket and us. Therefore we have to excel at our jobs to be the independents who will survive. The fact that you cannot download a television or a washing machine means that customers will need us in the future.”
Robert believes that electrical independents have to start thinking outside their traditional business model. “They have to use their current cost base to find additional channels to get their products to customers – perhaps to new customers – and start making money on delivery, warranties and installation.”