The vultures were circling. Its suppliers had trade credit insurance cancelled. Its lender and its leading shareholder had gone bankrupt.
Its currency hedge against the plummeting pound had disappeared, along with its banks.
Mosaic Fashions was the most troubled player in a very troubled sector — making it a useful exemplar for the rest of high street fashion.
But less than a year later, the owner of Karen Millen, Warehouse, Coast and Oasis is setting its sights on expansion at home and abroad. What went right?
Aurora Fashions was formed out of Mosaic Fashions, which found itself at the eye of the financial storm that broke out last year. It was majority-owned by Baugur, the failed Icelandic investment fund, and backed by Landsbanki, the Icelandic bank.
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“There were a lot of rumours. It was all a bit hysterical,” Derek Lovelock, the executive chairman of Aurora, recalls. The company fell into the hands of Landsbanki’s administrators. We worked with them on a very detailed business plan and made sure we were all comfortable with the assumptions.
“Fundamentally, we have one shareholder and one bank now. So, actually, everybody is perfectly aligned. That’s as perfect as it gets.”
Aurora, along with Hamleys and a swath of House of Fraser, is part of the Icelandic taxpayer’s glittering portfolio of British retail investments. All the companies say that the long-term approach of the Icelandic Government has lent them stablility.
The reluctance of the Icelandic Government to enter a fire sale and the unwillingness of banks backed by Britain to tip companies into administration has meant that the wave of business collapses predicted for the high street this year has not arrived.
“So much happened in the last quarter of 2008 — to lose trade credit insurance, to lose currency hedging and your banking going bankrupt — that we had to just trade through Christmas with the cash we had. Everybody was focused on that.” Mr Lovelock added that once it was apparent there would not be a fire sale, “ it was reasonably seamless. Everybody’s interests were aligned.”
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But the company had to endure some pain. It went into administration, shedding the Principles chain and changing its name from Mosaic to Aurora. In the administration process, the debt held by Landsbanki was converted into equity. The resolution committee owns about 90 per cent of the company. Aurora also had to win the support of its suppliers. When it lost its hedging facility, it leaned on suppliers for help to maintain prices in its shops. Similarly, suppliers had to trade without insurance cover. Mr Lovelock said that its reliance on a small number of suppliers meant that the relationships were strong enough to withstand the external difficulties.