Are garden centres overcapitalised?

The big news, in this issue, is how the very canny Nicholas Marshall has finally got his own back on Wyevale, by taking the job of chief executive officer eight years after the chain completed a hostile takeover of the Marshall's Country Gardens group.

Marshall was gleeful when I rang him and voiced no doubt that Wyevale owner (and new chairman) Sir Tom Hunter had given him the job because the six Wyevale centres he bought in November 2006 are 45 per cent up since then.

But how is Marshall going to make Wyevale able to pay off its debt, having spent £445m on the group and an additional £100m on bolt-on centres? And all this in a pretty static market hit by poor weather and the credit crunch.

This begs the question - are garden centres overcapitalised? West Coast Capital Hortis, the company Sir Tom Hunter used to buy Wyevale, has borrowed hundreds of millions to pay for Wyevale and subsequently-bought bolt-on centres but is only making a few million a year, while being charged an estimated £20m a year interest by its bank. Wyevale Garden Centres Ltd borrowed £145m and made £4.2m on a £185m turnover to December 2006.

Does this suggest Hunter paid too much for Wyevale? His representatives say no. Both they and Marshall think the banks are comfortable with the level of debt, given that they expect the market to grow. Old stagers in the industry are less sure.

Private equity companies looked at garden retail before Hunter and Tesco entered the market - and bought nothing. The previous model was Garden Store, which was to build a series of flagships but failed after just one was built - now Stephen J Smith's in Bolton.

Hunter and Tesco say they are investing in the future - the grey and green pounds. But are the grey pounds really going to spent big on gardening? They're spent on supporting their children and on SKI (spending kids inheritance) holidays.

After another flat year, when will the growth come?


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