The rise and fall of Wedgwood

The company best known for Wedgwood china and Waterford crystal has appointed Deloitte as administrator after debts overwhelmed it. James Thompson reports

The cracks had started to appear a number of years ago, but more than 200 years of Anglo-Irish industrial history was in the balance last night after Waterford Wedgwood called in administrators.

The retailer and manufacturer, best known for Wedgwood pottery, Royal Doulton and Waterford crystal, appointed Deloitte as administrator, after it succumbed to hefty debts of €450m (£420m) and tumbling sales and profits. Furthermore, customers had started to baulk at its prices during the credit crunch, although the company's fate was not helped by its products falling out of fashion and formal dining largely becoming a thing of the past.

Although the administrators have already received expressions of interest in the businesses, the collapse into administration of the Waterford Wedgwood holding company and nine of its UK and Irish subsidiaries is a far cry from the booming success of the brands during much of its history – and would make the perfectionist Josiah Wedgwood, who founded the Wedgwood brand in 1759, turn in his grave.

Mr Wedgwood was the youngest of 13 children who was born in Burslem, Staffordshire, in the heart of the English potteries. In his early twenties, Mr Wedgwood started working with the most renowned English pottery maker of his day, Thomas Wieldon, and learned a wide variety of pottery techniques. After founding the company, he achieved a key early success in 1763, when he manufactured a cream-coloured tea and coffee service for Queen Charlotte, wife of George III. Subsequently, she gave him permission to use the title, Potter to Her Majesty, and call his new cream ware Queen's Ware, giving the firm an enormous boost.

However, Mr Wedgwood gained a reputation as a tough taskmaster, who had no compunction about venting his spleen if production standards at a workshop were not up to scratch. If he saw a vessel that did not meet his exacting standards, Mr Wedgwood would smash it with his stick and shout: "This will not do for Josiah Wedgwood!"

Mr Wedgwood also created black basalt, a fine black porcelain, which was his first major commercial success, and he later invented the pyrometer, a device for measuring heat in kilns.

In simple terms, one of Mr Wedgwood's great achievements was to become the first company in 18th-century England to innovate the perfect mixture of fine bone china, which was extremely popular with the British upper classes.

Before he succumbed to cancer in 1795, Mr Wedgwood had passed his company on to his sons, hence the company's official name: Josiah Wedgwood and Sons. Many of Mr Wedgwood's descendants were directly involved in the management of the company over the years and the fortunes of Wedgwood soared through much of the 19th and 20th century.

In 1986, Wedgwood was acquired by Waterford Glass Company. Waterford itself has a long and illustrious history dating back to 1783, but the company's name was changed to Waterford Wedgwood in the late 1990s, partly because Wedgwood's profits were significantly higher. In 2005, it acquired Royal Doulton, the iconic manufacturer of china, in a move that was partly designed to deliver economies of scale. At the time, Waterford Wedgwood's group chief executive, Redmond O'Donoghue, said the acquisition would "increase the volume through our factories without substantially increasing production costs".

There is no precise point when the fortunes of Waterford Wedgwood started to fade, but the writing had been on the wall for some time. Over the years, it had acquired a number of companies. Across its renowned brands, Waterford Wedgwood employed 7,700 staff in the US, Germany, Ireland, UK, Canada, Indonesia, Japan and other Asian countries.

So what went wrong? Even before the credit crunch reared its ugly head in 2007, Waterford Wedgwood, like rival fine china brands, had been struggling. Fellow Staffordshire manufacturer Royal Worcester called in administrators in November.

From a commercial perspective, Waterford Wedgwood found it increasingly difficult to compete with a raft of cheaper imported rivals, many of whom entirely used manufacturing facilities in low-cost countries, such as China.

It also suffered from retail giants, such as Ikea, parking their tanks on its lawns and starting to sell mass-produced quality products, as well as department stores, such as House of Fraser and John Lewis, upping their game. Niche players, such as Villeroy & Boch, also started to eat into its market share.

Robert Clark, a senior partner at Retail Knowledge Bank, said: "Its products are luxury items and there is an awful lot of less expensive everyday ware around that people use and are quite cheap, such as from Bhs and House of Fraser."

He added: "There are a lot of lower-priced alternatives so Waterford Wedgwood's products became more and more niche. They have become more and more sidelined into gifts and upmarket and they have been overtaken by the mass production market."

Waterford Wedgwood has also suffered from the weak dollar which until recently hit its export costs.

Laura Cohen, chief executive-designate of the British Ceramic Confederation, thinks that Waterford Wedgwood has also suffered from changing dining habits in the UK and elsewhere over the past 20 years. "Whereas dining used to be quite formal, there is a trend these days towards more informal dining," she said.

As its target market has narrowed, it's fair to say that Waterford Wedgwood has also suffered from becoming increasingly viewed as an "outdated" brand.

"Its image is associated with the older age group who put stuff on display when friends come round and then stick it back in the cupboard or on the shelves afterwards. They have failed to find a compromise between everyday tableware and more upmarket, almost collectable, brands," said Mr Clark.

That Waterford Wedgwood has fallen into administration is certainly not through a lack of trying and financial investments by its major shareholders. In recent years, the company's shareholders, including its chairman Sir Anthony O'Reilly, his brother-in-law Peter Goulandris and Lazard Alternative Investments, have pumped €400m into the company.

As a result, Sir Anthony, who is also the chief executive of The Independent's parent, Independent News & Media, and his fellow investors are nursing huge losses. In a statement, Deloitte said its management had made "exhaustive efforts to restructure the businesses. However, as trading conditions deteriorated, it became apparent that a restructuring of the business could not be achieved in an acceptable timescale".

Deloitte added: "Consequently, management began looking at the alternative strategy of trying to find a buyer for the businesses which would also have involved a comprehensive financial restructuring. While considerable progress was made, no firm offer was secured."

In recent years, Wedgwood moved a large chunk of ceramics production from Barlaston, Staffordshire, to an industrial site on the edge of Jakarta, Indonesia.

Then, in 2005, Waterford Wedgwood announced the closure of its Waterford crystal factory in Dungarvan, Ireland, which resulted in large-scale job losses. The move was designed to consolidate all the operations into the main factory in Kilbarry, Waterford City, where 1,000 people were employed by the company.

However, Ms Cohen says that Waterford Wedgwood has also invested in new technology, such as "pressure castings".

"It has tried very hard to review their production and processes where it is possible today," she said.

It is understood that Deloitte has already received a number of expressions of interest from both financial and trade companies interested in buying some of the businesses. Sources said that Deloitte was meeting one of the parties yesterday. Whether a bid for the entire company will emerge is unclear, but the brands alone, if sold separately, would attract a huge amount of interest.

For the time being, Waterford Wedgwood's UK factory in Barlaston will resume production next Monday after an extended holiday period hiatus. Its overseas operations, including retail stores and manufacturing plants in Indonesia, will also continue – although they are likely to soon become part of the administration and associated sale process.

However, the company's financial woes tell their own story. For the six months to 4 October, Waterford Wedgwood posted a net loss of €75.8m, compared to a €57.1m loss in the first half of 2007. Its first-half sales tumbled by 15.4 per cent to €207.6m.

The administration of Waterford Wedgwood puts at risk the jobs of 1,900 staff in the UK, and a further 5,800 worldwide. However, Ms Cohen said that she was confident the business would "survive" and take forward its important brands. She also stressed that its factory in Barlaston was not the only one in the famous potteries area, citing Emma Bridgewater, Churchill and Steelite.

While there may be bigger administrations facing British industry, it would be a sad day if the brands of Waterford Wedgwood were to just become part of an industrial museum. If Wedgwood's founder were alive during the credit crunch, he would surely say: "This will not do for Josiah Wedgwood!"

Neville Kahn: Insolvency expert

Waterford Wedgwood's collapse into administration yesterday follows the demise of Woolworths in late November. In addition to being iconic brands, Waterford Wedgwood and Woolworths both have Neville Kahn, a restructuring partner at Deloitte, as a joint administrator.

Mr Kahn's public profile has soared. He has been cited on Facebook by Woolies' army of 27,000 employees, has held conference calls with the press pack, and now finds himself, as joint administrator, thrust into the rather more upmarket task of trying to find a buyer for Waterford Wedgwood.

Some City folk will remember him as being heavily involved with restructuring agreements with the creditors of four structured investment vehicles that fell into receivership in the summer. Mr Kahn has been a partner at Deloitte for 13 years, acting as lead insolvency practitioner on large international administrations and receiver- ships. His previous retail administrations include Powerhouse, the electricals retailer, and Kookai, the fashion chain.

When not tackling creditors and trying to assuage employees' fears, Mr Kahn is an avid supporter of Arsenal football club and likes to walk his dog on London's Hampstead Heath.