Barclay's buy puts Reality on hold
Chris Gorman's Reality Group faces an uncertaain future following its acquisition by the Barclay brothers.
Mercifully few people will remember Scotland's 1998 World Cup anthem by the unknown band, Highstorm.
Chris Gorman, however, will probably never forget a song that aimed to rival one by stars Del Amitri and ultimately heralded the arrival of the mobile phone millionaire's new venture, Reality Records.
The core business aim of the former director of DX Communications quickly became to embrace the dotcom dream of the late 1990s and transform what soon became the Reality Group into Scotland's first truly 21st century company.
It is this e-commerce dream that now stands on a knife-edge following the decision made almost two weeks ago by the Barclay brothers, owners of Scotsman Publications and Littlewoods, to purchase the catalogue business of Great Universal Stores (GUS). The Reality Group had been sold to GUS in May 2000 for the princely sum of (pounds) 35m, so it was perhaps surprising that not many noticed that it had been tossed into the package that the Barclays picked up. Reality ended up as a simple footnote in transaction documents.
The indifferent reaction to its fate was undoubtedly linked to the ambivalence felt by peers who remember only too well the hype and excitement its initial sale had generated.
"I don't know whether to laugh or cry. Reality proved you could build a successful technology business in Scotland and that gave a welcome spot of encouragement to a lot of struggling firms," said a Hamilton-based entrepreneur who insisted on remaining anonymous.
"But I couldn't help being a wee bit pleased when the whole thing fell apart. I know that's petty and vindictive, but my third business was going under while the GUS deal was all over the papers and that made me feel like a complete failure, so discovering that even the (pounds) 35m success story was less than perfect got me thinking that maybe I wasn't so useless after all."
Yet despite the reduced circumstances in which Reality now finds itself, the company can at least take comfort from its continuing status as a barometer of the digital economy. In just three years it rose from vibrant start-up to stratospheric success story before descending to corporate whipping boy in the wake of the bursting technology bubble. But even now, though barely newsworthy, those who bother with such things await developments with keen anticipation, fully-cognisant that what happens next may well be laden with portent for the entire e-commerce industry.
Those who doubt such an assertion would do well to consider a company history that encapsulates the new economy saga. Bored with the lifestyle afforded by his share from the 1999 sale of DX Communications to BT Cellnet, Gorman had hopped on the online bandwagon and launched Reality Web Design from an Ayrshire barn that had been converted into a music studio for Reality Records that same year.
Grasping the limitations of web design studios, the company name was shortened to Reality as its founder explored e-commerce's potential and embarked upon several joint ventures in the online retail space, capitalising on relationships with Scottish business luminaries like Tom Hunter and Richard Emmanuel to quickly acquire the reputation of an operation rising fast. Characteristically unable to resist the challenge of the big time, a move into larger Glasgow headquarters looked sure to be the starting point for an arduous slog towards the top until GUS came to town.
That winter, any corporation with dotcom associations was watching its stock rise while those without shed value by the day. The 150-year-old Mancunian mail order business's desire to join the in-crowd was understandable.
Reality had fewer staff than the corporation's internal web team and an even smaller client list, but the old economy stalwart was bewitched.
If getting (pounds) 35m for a company that's main assets were ambitious plans and cool ideas was remarkable, what made the deal phenomenal was that this Glaswegian ragamuffin had effectively done the taking over. Wowed by Gorman's passion, the giant surrendered its call centres, credit reference company Experian and White Arrow deliveries to Reality's vision of an operation covering every retail detail from website to customers' doors.
What happened next is anyone's guess. All parties have remained tight-lipped, but the most plausible explanation is that when the dotcom bust rendered many e-commerce ventures worthless, shamefaced GUS blamed Gorman while the entrepreneur's frustration over the company's ponderous pace spiralled. The scapegoat's unheralded departure didn't fool anyone – no executive associated with the deal remains in the venerable retailer's employ.
GUS, with its Reality delivery fleet's new branding effectively the sole return on its (pounds) 35m, was probably delighted when the Barclays removed the last reminder of its digital rout.
It is a shallow perspective, but attempting change endangered a business which had previously run smoothly for close to a century, and despite official denials this may have made abandoning 100 years of history seem preferable to managing mail order's inevitable move online.
"Since 2000 we have been streamlining GUS to focus on fewer businesses and growth markets. This sale was simply the natural evolution of this process," said chief executive John Peace, who was unwilling to discuss the new economy gamble that precipitated the departure of his predecessor Martin Trees.
What next? Many analysts argue that Gorman's vision for the company would have worked had the market not crashed, an opinion many suspect the Barclays might share. Adding the Great Universal catalogue and its sister titles to their Littlewoods operation leaves the brothers with a home shopping empire occupying 30% of the UK market and a (pounds) 2.7 billion turnover. But while rationalisation will temporarily offset the annual 8% sales slump afflicting the industry, speculation that the group intends to attack this decline by resurrecting Reality's original grand plan is rife.
"The Barclays have a distribution network, retail presence, customer support centres and well-established mechanisms facilitating every aspect of the trade. Meanwhile they're in a declining industry and can see the growing consumer preference for online shopping will only accelerate that downward trend," said technology consultant Bill Hutchison. "If the twins want to make their money really work for them they must develop the group's e-commerce potential and maximise its logistical capabilities, utilising excess capacity to provide third party logistics services."
A spokesman for Littlewoods emitted noises conveying official delight over Reality's forthcoming contribution to the corporate family but was unable to give any indication of the company's plans for its newly acquired subsidiary. Staff at the fallen icon's own headquarters, unsettled by the takeover and spooked by predictions of mass redundancies, were reluctant to answer questions.
For the next few weeks the digital world will be paying close attention to see exactly which way the hammer falls.
