Big Interview – Theo Paphitis



Dragon Theory


by Steve Hilleard


Having made a fortune in property, mobile phones and sexy lingerie, Ryman’s charismatic Chairman explains why he loves office products
The office products industry doesn’t boast too many celebrities, but entrepreneur and TV star Theo Paphitis, Chairman of the UK’s leading office products retailer Ryman, is certainly one of them. Quite why OPI has never interviewed Paphitis before remains a mystery as his life is a classic rags-to-riches tale.
Born in Limassol, Cyprus in 1959, he emigrated with his family to the unfamiliar north of England at the age of six. His academic record was undistinguished, a fact that was eventually explained by his dyslexia that had gone undetected throughout his formal education but which seemingly sharpened his other innate abilities.
Paphitis started his career at the age of 16 as a humble tea boy/filing clerk before making his first venture into retail at the age of 18. By the time he turned 20, he had moved into finance – property and corporate – specialising in turnarounds, before setting up his own company at the age of 23. By the mid-1990s Paphitis had bought several struggling retailers including lingerie chains Contessa and La Senza, turning these businesses into solid, profitable enterprises and adding to his significant wealth when they were sold two years ago to a private equity firm.
His first foray into office products was through the acquisition of ailing UK retailer Ryman the Stationer in 1995. Despite being a household name with a heritage stretching back to 1893, Ryman struggled to deal with the recession that plagued Britain at the time. Thanks to Paphitis’ leadership, Ryman is now in great shape, poised to dominate the High Street again, having added two further chains to the group’s impressive stationery retail portfolio.
His interests don’t stop there, however. He spent eight years as Chairman of London-based Millwall Football Club, taking it out of administration, into the Championship and to the FA Cup Final.
That said, Paphitis is best known to the UK public as a star in the successful TV series Dragons’ Den, where budding entrepreneurs pitch to Paphitis and four other ‘Dragons’ in the hope that they’ll invest their own cash in these fledgling ventures. A Dragon he may be on screen, but in person he’s engaging and enjoyable company and justifiably tremendously proud of his achievements, which include the recent publication of his autobiography.


OPI: Can we start by you summarising your career to date, explaining the story of how you came to be in the OP industry?
Theo Paphitis: You haven’t bought the book?
OPI: I was going to talk to you at the end about your book. I’ve been trying to figure out why you’ve been so over-exposed in the UK media just lately and then, of course, it dawned on me – you had a book published recently.
TP: [laughs] Doh!
OPI: [laughs] OK, I asked for that!
TP: Yes, I have. Enter The Dragon, published by Orion, and it’s in good bookstores near you!
OPI: Well, assuming that most people are not going to spend £19 on your book…
TP: Well, I’m hoping they’re actually going to invest in it. It’s actually only about £12 on promotion and it deals with the obvious. Now you might think: "Why do I want to read about the obvious? If it’s obvious, I can deal with it." But a lot of people don’t. If they did, they’d all be incredibly rich. Including you! Enter the Dragon is my life story and it was interesting for me to write because I found out various things that I didn’t know before I started.
OPI: Such as?
TP: Such as that my name is actually not Theo Paphitis at all – that was a bit of a shock!
OPI: So what is your real name?
TP: [Grins] You’ll have to read the book. It talks about my private life, the businesses where I’ve had success, but also where I’ve ended up on my backside and the lessons I learnt.
OPI: Can you give us some of those lessons?
TP: It’s in the book.
OPI: [laughs] I’m not going to read your book. I haven’t got the time.
TP: [laughs] How can anyone do an interview with a bloke who’s just published a book, and not spend a few quid and read it?!
OPI: Theo, we have readers in Aruba and Azerbaijan. [laughs] They’re not going to go out and hunt down a copy of your book, so we have to make it easy for them today!
TP: [smiles] OK. Well, Ryman was a defining moment in my book and in my life.
OPI: That’s a good place to start then.
TP: It is, but the lead up to it is just as interesting as the event itself. In the early 1990s, I was involved in various businesses including selling mobile phones, partly through concessions in Ryman stores. The business was in trouble and I was interested, but the official receiver claimed to have a buyer so, as far as I was concerned, I was totally out of the running.
Then, soon after, while on my way to watch Arsenal in a European match, I got a phone call from the receiver. I was told that the sale had collapsed after spending 36 hours locked in a lawyer’s office putting the deal together, and I was asked if I was a time waster, or was I for real. So I said: "I’ll tell you what, I’m about to get on a flight to Paris. I’ve got a choice – get on a flight to Paris or turn up at your lawyer’s office with my cash, if you promise to do the deal." So that’s what happened. I went back and it took 48 hours non stop, without sleep, but I got Ryman.
OPI: And what did you pay for it? Not a lot, if I remember correctly.
TP: Nice try! You can’t remember because we never publicised it. It’s not even in the book!
OPI: So you had exposure to Ryman through the concessions and you identified a company that was obviously in distress. What did you see that you thought was salvageable?
TP: Well, distress was my business. I had lots of businesses that had been in trouble and I had fixed them so I felt comfortable.
Everyone said it was a dog, that we were entering the age of the paperless office and that there was no need for a stationer in the High Street. I knew that was a load of old balls – Ryman had some of the best sites in London, but we were in a recession. And it just had so much wrong with it. It was one of the rare occasions where the local management actually wasn’t that bad. It was the top management that was far from impressive in my view.
OPI: Having bought it, what did you do with it?
TP: I got it to £800,000 ($1.6 million) profit in the first year. It had been losing £8 million a year.
OPI: By eliminating that layer of under-performing management?
TP: It’s all in the book. Oops, did I mention the book?
OPI: This is going to be tough!
TP: [Laughs]
OPI: So you got rid of some dead wood management.
TP: I had some good local management but I had shit top management. One of the first things I did was install EPoS right across the chain inside three months – that was good because it meant we knew what we were selling. In retail that always helps!
OPI: And that was across all 130 stores?
TP: No, I didn’t take them all. I only took about 88.
OPI: How did you manage to acquire only some of the stores?
TP: Quite easily. I got together with the landlords and explained to them the facts of life, in a nice way, and managed to persuade them to renegotiate the leases for me so that I could afford to stay there.
The ones that wouldn’t renegotiate were thanked very politely. Then I sent the Ryman lorries there the following day, emptied the shops and handed the keys back. And then, when they said "you can’t do that under the terms of the lease", I said "sue the receiver, it’s not my lease!"
OPI: So you didn’t acquire the leases?
TP: I acquired the ones where the landlords were prepared to be sensible. They had a choice.
I told them: "I’ll stay here, but instead of £100,000 a year I can pay you £70,000 and I won’t strip out all the assets and leave you with an empty shop. And because we’re in a recession, it’s going to be empty for the next couple of years at least. So you’re either going to lose two lots of seller tenure or you can let it properly at the current market rate, which is £70,000. What do you want to do now- The clever ones actually said: "We’ll get even with you at the next rent review." I replied: "I look forward to it – on the basis that we’re all here at the next rent review, it means we’ve all had a result and I’ll be very happy." It’s not rocket science. It’s just common sense, which is not very common.
OPI: And then what?
TP: We added a mail order catalogue and launched an e-commerce division, but we needed to expand and get more critical mass. We needed to make better use of our resources. So I thought I would just have a chat with Partners the Stationer, which was then publicly traded. I contacted the stockbrokers and asked to meet the management because I felt there could be some common synergy here.
OPI: What was the complementary fit?
TP: First of all our shops didn’t really cross over because we’re in the south and Partners were in the north/north-west. And they were really consumer-focused whereas we were mainly SOHO.
OPI: A bit of a no-brainer then?
TP: Exactly. I got a phone call the following day from the stockbroker. He said: "I’m a bit embarrassed to tell you this, but Partners’ CEO is far too busy to meet with you this year because he’s dealing with Back-to-School. It would be good to meet up next year some time." This was at the end of the summer! So I said: "Well, tell me, how exactly is he dealing with Back-to-School? Back-to-School was bought three months ago. Is he working in a shop? Tell me which shop he’s working in and I’ll go and see him there! I’m not proud – I’ve done stints behind the counter. We’ll do it together!" Anyway, the answer was no and eventually Partners went bust and we bought the chain anyway, I’m sure for less than I would have paid when I first approached the company.
OPI: So you put those two together and then recently acquired another struggling stationery retailer, Stationery Box?
TP: That’s right. The funny thing was that Stationery Box had 61 stores and a lot of them were in Scotland where Ryman and Partners had none.
I made several bids for them in the past which were rejected by the management. Eventually, that outfit went bust too and I was able to buy the stores for a fraction of what I’d offered before.
OPI: At that point did you see that there was an opportunity to re-brand them all as Ryman one day?
TP: Well, that’s always the aim and that’s what we’re doing at the moment. We’ve almost completed the whole group branding exercise now.
OPI: So your current group is around 240 stores?
TP: We currently have 237 stores with an additional six stores confirmed and opening in the next two months. We also have a central warehouse in Crewe [northern England], which actually is quite central when you consider that we now have stores from the top of Scotland down to the south-west of England.
OPI: What’s your target store count?
TP: We plan to increase our portfolio to over 300 stores over the next two years through organic growth or the acquisition of a chain of stores should the opportunity arise. Mr [Kypros] Kyprianou [Group CEO] is actively working on it as we speak. We’ve also just opened our first store in a Waterstone’s book shop and then we’ve got a roll-out of stores within Waterstone’s. We went with Waterstone’s because its CEO, Simon Fox, knows stationery of course. [Fox was managing director of UK superstore chain Office World until 1998].
OPI: I noticed that your store upstairs here also contains a Post Office.
TP: We have quite a few, yes. Every Eastern Mediterranean man wants a Post Office, doesn’t he?!
OPI: [laughs] What can you share with us about your financial performance?
TP: As you know we’re a private company and we don’t publish our results other than the financial statements we have to file publicly at Companies House. But I can tell you that our group sales for the year to 31 March were £135 million, up from £111 million in 2007.
OPI: How much of this growth was organic?
TP: Sales were boosted by the acquisition of the Stationery Box stores but, despite a challenging retail market, like-for-like sales were positive and our operating profit was well ahead of the £5 million we reported in 2007.
We expect online sales to more than double this year, helped by the launch of a new website in the very near future that will enable customers to maintain accounts and support the penetration of the B2B market through leveraging the vast geographical coverage our store portfolio provides.
OPI: What’s next for the group?
TP: Well, we have embarked on the rebranding of our Partners and Stationery Box stores to Ryman and expect that this will be completed this summer.
We’ve also consolidated our head office functions for the three businesses. That will provide us with further improvements in efficiency and profitability, in what is becoming the most challenging period for retail for years.
OPI: Do you have any plans to expand beyond the UK?
TP: We are looking at international expansion which we’re very excited about because we’ve chosen stationery as our area of expertise. We like it. We enjoy it. We think there’s a future in it.
OPI: Which markets are you looking at?
TP: I can’t tell you that.
OPI: OK! Let’s change the subject. It’s fair to say many people are intrigued to find out why you’re in office products, which is not exactly sexy. You’ve sold mobile phones, owned a highly successful lingerie business, and been Chairman of a high-profile English football club. Every schoolboy’s dream! So why stationery?
TP: [smiles] People can’t believe I sold a lingerie company and kept a stationery company. They think I’m absolutely barking [mad].
But let’s look at the facts. Pencils versus lingerie:
• Obsolescence – pencils (nil); lingerie (lots)
• Fashion – pencils (nil); lingerie (lots)
• Weather related problems – pencils (nil); lingerie (lots)
• Sensible, logical business – pencils (yes); lingerie (absolutely not).
We love it. Compared to other retailing interests I’ve got, I would say stationery is such a relaxed business. It doesn’t have the peaks that other businesses have. When things go well in fashion, you make bundles, but when they go badly, you lose bundles. If I’m in a recession I know where I want to be.
OPI: What are your thoughts on your two largest competitors – Viking and Staples?
TP: Well, Office Depot looked at us quite a while back and we looked at that company too. But that was that. It’s got expansion ambitions but we’re quite relaxed. The market is plenty, plenty big enough for us all and I quite enjoy the challenge.
OPI: And Staples? As you know, it recently opened up a trial High Street ‘Express’ format store in Manchester.
TP: Yes, I’m going to see it next week. I’m doing a book signing in Manchester!
OPI: Does Staples’ move concern you?
TP: [smiles] Competition is great.
OPI: A $20 billion company opens up on your turf. Surely that must…
TP: What are they going to do? They can do one of two things. Either they can go and open up everywhere I’m not, and that’s probably not a lot of places or they can open up near me. If they open up near me, all that’s going to happen is they’re going to split the business and I’m not going to make a lot of money and neither are Staples.
OPI: So I assume that the location Staples has chosen in Manchester is not one where you have a store?
TP: [laughs] Exactly! We don’t expect to have the High Street to ourselves. I expect WH Smith to pull its finger out at some stage and I expect Woolworth’s to pull its finger out as well.
Why would Staples want to do what they are doing, one store at a time? It’s going to take years!
OPI: So they should have picked up the phone and spoken to you.
TP: Sure. I’m quite a nice bloke.
OPI: What do you make of the current WH Smith strategy to retrench and focus on some of its core disciplines such as stationery?
TP: Have you seen that I’ve just opened a store right under its head office in Wardour Street?
OPI: [laughs] You haven’t?!
TP: Yes! Just for a bit of fun! I think WH Smith is doing a little better these days. It is focused a bit more on stationery and that’s good. The company has been around a long time and I respect it. Of course it does lots of other things. It does books. Did I tell you that my book is number five in WH Smith’s bestsellers list?
As long as we do what we do well, focus, make sure we get the right product in the right place, give service – which we do exceptionally well – then we’ll be fine.
OPI: What do you think is the future for the High Street retailer in general, particularly given some of the economic challenges we’re facing?
TP: I’m happy but I think the High Street is finding it tough already. I’m being offered businesses every week now. But we’ve been through tough times before.
We’ve just got to make sure that we focus, be better and work harder than everybody else and don’t get complacent. If we do those things, we’ll come out the other side better than everyone else.
OPI: Let’s talk about Dragons’ Den which is how you’re probably best known to the general public in the UK. But I doubt too many people outside the UK are familiar with that TV programme?
TP: Actually, there’s a Dragons’ Den in…
OPI: Don’t tell me they dub you into German?!
TP: We’re all around the world! Japan, Australia, Canada, Israel, the Netherlands. They’re even filming a Dragons’ Den in America as we speak [which will be entitled The Shark Tank]. It’s very, very popular.
OPI: You weren’t in the first series. I think they dragged you into the second series to…
TP: Give it a bit of colour and sparkle!
OPI: You must have made a number of investments as a result of that TV programme. Which ones would you single out?
TP: We’re investing in some very early start-up businesses. If you do that then statistically some aren’t going to work out – it’s a fact of life.
I’ve had lots of fun with them but it’s very grounding for me as well. Some of them have been rip-roaring successes, some have been hugely disappointing, and some have just been chugging along the line. We did brilliantly with the iTeddy business, for example.
OPI: You made one office products related investment in the Foldio business. Have there been any other stationery investments?
TP: Yes, there’s another one in the new series we have just filmed actually, but I can’t tell you about it.
OPI: So not only do I have to read your book, I also have to watch your television show?!
TP: [laughs] Seriously, we can’t talk about the investments on the series until after they have actually appeared. What I can tell you is that I did invest in an office products company. It’s small but it could complement Foldio.
OPI: Many of these entrepreneurs accept your investment because of the value and experience you bring. But how can you add value when you’re running so many companies, giving interviews to the press, signing books…?
TP: There’s a team of people in my organisation that get involved. I’m not going to put £50,000 into a deal and give up what I’m doing already.
I just have to tell people: "I’m going to back you. I’m going to give you my contacts, give you some facilities, I’ll get you some mentoring, but I’m not going to run your business. If you expect me to run your business, go and do something else."
OPI: I wanted to ask you about women in the office products industry. Did you realise that there’s only one woman in our global list of the top 100 office products reseller executives?
TP: You’re joking? Many of my businesses are run by women.
I always think that, for a woman to be in a senior position, she’s got to be better than a bloke. They have to balance a lot more things than we do. They’ve got to balance family life together with a career. They go through some incredibly stressful times and seem to be able to just get on with it without moaning.
OPI: So why aren’t there more women in higher positions within our industry?
TP: I can’t comment about the stationery industry in particular, but part of the issue is that many take a career break to have children.
What would happen if you took five years off work, for example? Getting back on that ladder again is very difficult which is why women executives have to be so much tougher than us men.
OPI: Final question: I see that according to the Sunday Times Rich List, your net worth increased by another £10 million last year, yet you slipped 24 places down the rankings. Do you take a lot of notice of stuff like that?
TP: [grins] I’m just a poor little immigrant boy quite happy to be here, educating my children in your wonderful country. And I’m very grateful to you for allowing me a visa to be here temporarily!