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De La Rue becomes the latest victim of pivot failure

While the 198-year banknote maker could be the next business to fall victim to a lack of adaptability, it isn’t the first long-established brand that has failed to move with the times

De La Rue PLC - De La Rue becomes latest victim of pivot failure
De La Rue has previously designed notes for the Bank of England

A warning from banknote maker De La Rue PLC (LON:DLAR) that it faces “material uncertainty” over its future sent the shares tumbling 21% on Tuesday to 138p.

The company’s £170mln debt pile and the loss of a crucial contract to manufacture UK passports has put it on the edge of collapse, according to analysts, with its market cap currently at £182mln, 70% lower than a year ago.

READ: De La Rue warns of “material uncertainty” over future

Some market watchers said lack of foresight by a generation of managers for the company’s current woes. In other words, they all failed to spot the world was going cashless.

“In an increasingly cashless world one has to wonder just how long De La Rue can survive without a radical change to its business model”, said AJ Bell investment director Russ Mould, adding that while the firm has attempted to diversify its business into other services such as goods authentication, it was still doubtful whether these could ensure its ability to operate in the long-term.

However, while 198-year old De La Rue could be the next business to fall victim to this lack of adaptability, it isn’t the first long-established brand that has failed to move with the times.

Failing to pivot

Of course, some of the worst hit players have been department stores, which with their large estates and hefty rents have been at the sharp end of the transition to online shopping as websites continually provide more variety and convenience for customers. And of course, the internet, Amazon, Boohoo et al happened.

The collapse of House of Fraser in the summer of 2018 was one such case as despite plans to shutter over 50% of its outlets the company fell into administration amid mounting costs and a decline in foot traffic. It was later bought out for £90mln by Mike Ashley’s Sports Direct International Plc (LON:SPD).

It was followed less than 12 months later by its rival, Debenhams, which in May was put under the control of its lenders after collapsing under the weight of a £720mln debt pile.

More recently, the world’s first travel agent, Thomas Cook, went bust in September as it failed to adapt quickly enough to the rise of online travel bookings, instead continuing to weigh itself down with a large network of high street travel agents that very quickly became redundant in the face of online competitors.

By the time the group realised it needed to change its business model, it found itself lacking any cash to mount any kind of turnaround, and instead was continually siphoning off funds to repay its debts.

Successful pivots

While advances in technology, mostly the rise of the internet, have claimed the likes of Debenhams and Thomas Cook, other companies have seen the writing on the wall and have managed to successfully pivot their business models or are in the process of doing so.

One example is broadcasting giant ITV PLC (LON:ITV), which is currently undertaking an effort to wean itself off traditional TV advertising and towards the burgeoning market of content streaming.

The FTSE 100 group has launched BritBox, a Netflix Inc (NASDAQ:NFLX)-style platform set up in partnership with the BBC that provides subscribers with access to an archive of British TV, as well as its own dedicated offering, ITV Hub.

Meanwhile, the firm is also aiming to increase income from its content production arm, ITV Studios, which is responsible for multiple successful series such as Love Island and Queer Eye, which is made for Netflix.

The shift already seems to be paying off, with ITV predicting that revenues for its Studios business will grow by at least 5% in its current year while advertising is expected to decline by 2%.

READ: Future raises expectations as it reports runaway growth from media acquisitions

Similarly, FTSE 250 magazine group Future PLC (LON:FUTR) has moved away from its traditional print-based business into digital, acquiring tech website Mobile Nations and business news site SmartBrief earlier this year.

The move has pushed the company into overdrive, with sales in the year to 30 September rocketing 70% to £221mln alongside a 189% surge in pre-tax profits to £12.7mln.

Looking further back, some of the world’s most successful corporations have arisen from well-timed business pivots.

Social media giant Twitter Inc (NYSE:TWTR), for example, started life as Odeo, a podcast network in the early 2000s.

However, due to competition from iTunes and a lack of popularity for podcasts, the founders quickly pivoted to micro-blogging, a move that has seen the site grow to around 126mln daily users and a market cap of US$23.3bn.

Quick facts: De La Rue PLC

Price: 127.2 GBX

LSE:DLAR
Market: LSE
Market Cap: £1.32 m
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