Blackfriar: A bold move to make in these difficult economic times

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IT takes guts to launch a new business in this bleak economic climate – and even more so one exposed to consumer spending.

Yesterday’s relaunch of MFI is undoubtedly a bold move amid the tightest squeeze on household incomes for decades.

It is targeting a very vulnerable slice of consumer spending – the market for beds, sofas, tables, wardrobes and bathrooms. Faced with stagnant wage growth, rising unemployment and surging bills, consumers understandably think twice about committing to these ‘big ticket’ items.

Meanwhile the housing market, a catalyst for furniture sales, remains stuck in first gear.

MFI itself fell prey to this tough market in November 2008, and recent failures have included Focus DIY and Habitat. Others exposed to this bleak sector include Topps Tiles and Carpetright, which have had to issue profits warnings.

MFI’s administration in 2008 was a huge blow to the high street, and left 30,000 households with unfulfilled orders.

So against all of that, why choose now to resurrect MFI?

Adrian Storr, commercial director fronting the Hull-based business on behalf of the Walker Group, insists there is still affection for MFI, and says many are unaware it had ceased trading.

Storr was merchandise director at MFI before its collapse, so brings a wealth of expertise and contacts.

Crucially, the company operates via a low-cost structure. It employs a team of 35 and has no plans for shops – meaning it is not hampered by quarterly rent bills and high wage costs. MFI doesn’t make its products – these come from external suppliers – and nor does it design them. Customer calls are outsourced to Hull telecoms firm KC, which runs call centres. Deliveries are also outsourced.

MFI argues customers are prepared to accept longer waiting times for products in return for lower prices. In a squeezed market, Storr believes there is room for a nimble and lean operation.

Retail analysts at Singer Capital Markets yesterday gave the re-launch a cautious welcome.

“Whether or not it gains critical mass in this environment is a big question,” they added.

People are increasingly prepared to buy big items online, and the absence of a costly chain of stores should give the new MFI an edge over its high street rivals.

MFI’s owner, Hull’s Walker Group, has also bought the Focus DIY brand. If MFI works as an online retailer, Blackfriar would not be surprised to see a re-launch of Focus DIY too.

Pet drugs company Dechra Pharmaceuticals is enjoying great success at its Skipton-based Dales factory, which won US regulatory approval this week.

The US has huge potential for Dechra. While there are about eight million dogs, eight million cats and a million horses in the UK, the US market is ten times that size with 75 million dogs, 82 million cats and 10 million horses. The fact Dales has secured US approval for its Cushings disease treatment Vetoryl will open doors for the group’s other pet medicines.

Dechra will now look to extend the FDA approval into other products and dosage forms.

The approval means the company will now be able to produce pharmaceutical products for all major world markets.

Analyst Brian White at Shore capital said: “The achievement of an FDA approved manufacturing facility is a significant achievement for Dechra and should go some way to further the companies aspirations in this key geography. Currently, Vetoryl is the most important product for Dechra in the US.”

Analyst Keith Redpath, at FinnCap, added: “This is the first product approved by FDA for manufacture on the site and follows the site inspection in September.

“In-house manufacture of products for the US will have an impact on gross margin. Now that the site has passed muster, and the first product has an FDA approval, we believe further products may be transferred in-house with relative ease.”

Dechra has managed to beat the economic downturn thanks to strong sales of its branded products. The company develops prescription medicines for dogs, cats and horses, therapeutic diets for dogs and cats, and unlicensed medicines, shampoos and supplements.

Dechra is developing a number of new drugs for launch in 2013, starting with a product to treat lameness in horses.

“There’s a clear road map for new drugs,” said Dechra’s chief executive Ian Page. “In 2013, 2014 and 2015, we would expect one new product a year at least.”

Collectively the new drugs will add between £25m and £30m in annual revenues.

The FDA approval is the culmination of a project which has involved significant investment in the quality systems and infrastructure at the Skipton facility, another example of a Yorkshire facility that has invested for its future rather than rein back in difficult economic times.