What led to the rapid demise of Haldanes after only 18 months? CEO Arthur Harris gives Beth Phillips his own account of events leading to the meltdown

Earlier this year, Arthur Harris, CEO of Haldane Retail Group, which includes Haldanes Stores and Ugo Stores, told staff that he and his management were “building a medium-size group of stores with a stable and long-term future” and having “fun and enjoyment” as they did.

Last week, that “fun” turned to frown when Haldanes Stores Ltd and Ruston Retail Ltd collapsed into administration after only 18 months. Twenty of the 23 stores were closed putting 600 jobs at risk, just weeks after Harris launched High Court proceedings against The Co-operative Group, from which it acquired its stores in 2009 and 2010, claiming it “materially breached key terms of the agreements”. Haldanes’ failure has left more questions than answers.

Staff claim they were left in the dark after stores shut on 14 June, but the chain did not officially enter administration until 22 June. A web forum www.larkhall.biz/haldanes was set up, where affected staff reported that they had contacted Watchdog, Panorama and even the PM.

So what did happen and why? The first cracks started to appear last summer when Haldanes closed two stores and failed to open another. But behind closed doors, trouble was brewing from March 2010 when Harris met external auditors to put together a draft letter of claim against the Co-op Group. He “personally thought it was too early to quantify the claim”, leading to a disagreement with then-CEO Graeme Hay, who left in April 2010. “I now concede Hay was absolutely correct,” admits Harris. “We should have taken action at that point while it was still a very fresh issue.”

Despite Harris’ claim, The Grocer has learnt that The Co-op Group has provided several millions of pounds to Haldanes since formation. This includes underwriting its supply agreement with Nisa-Today’s and agreeing to defer rents for leases on 17 of its stores.

Others say Harris’ dealings with Somerfield in the past would have made him know the score when he acquired former Somerfields. One of his former businesses, forecourt operator Dolphin Retail, acquired a number of Somerfield sites, but entered administration in 2009. Haldanes’ management also have close ties with Somerfield. Non-executive director Steve Back was MD 2004 to 2006 while COO Richard Collins ran range development for c-stores and forecourts.

“Dolphin acquired a number of Somerfield forecourts. However, they were run from the convenience business unit of Somerfield using a completely different model,” insists Harris. “They bore no resemblance to how their other large stores were obviously being traded.”

An OFT document relating to Asda’s acquisition of Netto also points to problems at Haldanes. Haldane Retail Group acquired 20 Nettos earlier this year to form the new discount chain Ugo. In the document, the OFT reveals it ‘stress-tested’ Haldanes’ business plan “to ensure that a lower-than-expected performance of those stores would not place the Group under financial stress” but concluded: “The Ugo format would still be successful if sales targets were not to be met by some extent (even allowing for the cautious nature of the forecasts).”

The document reveals that Haldanes put six stores in Scotland on the market in 2010 but later withdrew them because, said Haldanes, the sale “was no longer considered necessary”.

Letters to every employee
Alarm bells started ringing for suppliers when Haldanes missed payments. Says one Scottish supplier, who says he is owed £13,000: “We stopped supplying after another supplier told us Haldanes had missed a payment and had stopped taking his calls.”

Scottish newspaper The Daily Record suggested Haldanes collapsed with debts of as much as £8m, but Harris claims the allegations are “spurious and incorrect”. He also says staff were kept well-informed. “We conducted a conference call with store managers. We sent letters to every employee clearly explaining what would happen to their store, how and when they would be paid, and giving full details of how they could claim redundancy payments. [Administrators] The P&A Partnership has also established a website designed to offer help and advice for employees.”

The P&A Partnership acted as administrator for Woodhead Bakery, which Harris acquired, as well as 11 of its retail sites, in April to form Bakery Products Ltd. P&A also acted as administrator for Dolphin Retail when it fell into administration along with four other companies run by Harris Y50, Dolphin Retail Management, Kingdom of Fun and Cliffe House in 2009, owing unsecured creditors more than £2m.

“Y50 was a property company totally affected, along with many others, by the massive slump in property values and the problems the banks were wrapped up in,” says Harris. “There were cross-guarantees across all the group of companies and the bank called in those guarantees in order to balance its own loan-to-value risk.”

On P&A, he adds: “I was introduced to P&A by my Leeds lawyer when the Y50 group had its issues. With regard to Haldanes, it is only natural to approach a firm and people you already know. However the lawyer dealing with it on behalf of P&A is someone I have never met previously.”

Haldanes Stores, Ruston Retail, Y50, Dophin Retail, Dolphin Retail Management, Kingdom of Fun and Cliffe House are not the only failed companies associated with Harris. An online check reveals Harris, under the names Arthur Haldane Stewart Harris, Arthur Haldane Stuart Harris and Arthur Maldane Stuart Harris, is or was the director of 26 companies. As well as the seven listed above, five companies also went into liquidation but have since dissolved, including Scottish deli chain McLeish Brothers and McLeish Holdings where Harris was an “initial investor”.

Critics have put Harris’ background and the failure of Haldanes together to speculate on the future of Ugo. Staff on the web forum claim stocks are low. This week the company also released its latest promotional leaflet, which has eight pages, against 24 previously.

But Harris insists Ugo Stores Ltd, as well as Haldane Retail Group Ltd, Haldanes Express Ltd and Bakery Products Ltd, are unaffected and have the backing of suppliers. Bakery Products is also due to start supplying Ugo stores with own-label lines in the next couple of weeks.

“Stock levels are excellent in every store,” he says. “This forum has been set up by disgruntled ex-employees of Haldanes and is almost certainly by default, and quite understandably, going to include allegations that are not in the interest of myself or any other companies I am involved in. We have increased frequency from a 24-page leaflet every three weeks to an eight-page leaflet every week. We are also tripling the circulation of the leaflets as of 4 July.”

The Haldanes story

October 2009 Formed after acquiring four Somerfields
November 2009 Opens for in Prestonpans and buys fourth store
December 2009 Acquires 13 former Somerfields
January 2010 Buys another eight
April 2010 CEO Graeme Hay leaves, replaced by FD Chris Laud
June 2010 closes two stores
July 2010 unopened store in Wales sold to TJ Morris
January 2011 acquires 20 former Nettos via new company Ugo Stores and announces plans to launch c-store chain Haldanes Express. Harris moves from chairman to CEO
March 2011 first Ugo opens
April 2011 acquires Woodhead Bakery and 11 shops through new company Bakery Products