Barratt Developments plc - Company Profile, Information, Business Description, History, Background Information on Barratt Developments plc

Wingrove House, Ponteland Road
Newcastle upon Tyne NE5 3DP
United Kingdom

Company Perspectives:

Innovation is a key factor which has contributed to Barratt's undisputed position as Britain's premier housebuilder. Allied to innovation is a commitment to the highest quality, standards of design, construction, finish, and service which has earned Barratt every major house-building award in the industry.

History of Barratt Developments plc

Barratt Developments plc operates as a leading homebuilder in the United Kingdom and offers a wide variety of living options, including studio apartments, single-family homes, and large mansions that range in price from £50,000 to £3 million. Established in 1958, the firm has constructed more than 250,000 new homes and has more than 350 developments in progress from northeast Scotland to southern England. The company's U.S. subsidiary builds homes in southern California.

Company Origins

The company was founded in Britain in 1958 by Sir Lawrie Barratt. Barratt's original intention was to provide private housing for first-time buyers. This strategy proved to be very lucrative: after a slow start, between 1977 and 1979 alone turnover increased from £99.3 million to £163.2 million. The impressive rise in sales propelled Barratt to the forefront of the British housing industry.

For years prior to Barratt's success, more than one-third of new construction activity in Britain had been subsidized by the government. By early 1980, however, this situation had changed; the Thatcher administration drastically reduced appropriations for all building programs, especially public housing. Although the company was initially hurt by the decision, later it was compensated by Thatcher's tax incentives to private homeowners. By 1982 sales surpassed £300 million and the company had built over 1,000 units more than its closest competitor, Wimpey's plc.

By the mid-1980s, Barratt decided to expand its product line. After conducting an exhaustive review of the British housing market, Barratt developed a range of individually designed houses. This series, called the Premier Collection, offered more than 60 different house types from which to choose, including retirement and luxury residences.

Barratt management also decided to shift its marketing emphasis away from first-time customers in order to attract second- and third-time homeowners. Because of escalating land prices due to the lack of available residential space, Lawrie Barratt thought it too difficult for the company to meet the needs of first-time buyers. As a result, Barratt would concentrate on satisfying the growing consumer demand for larger homes.

New Strategies Fuel Growth in the 1980s

At the same time, however, that the company began building larger private residences, it also initiated a number of successful projects designed to rehabilitate existing urban properties. Joint ventures with city councils, organizations, and lending institutions led to affordable housing for urban residents while halting the deterioration of inner-city properties.

In addition to these renovation projects, Barratt participated in novel development programs for cities throughout Britain. One such plan included offering shared ownership of dwellings through housing associations and subsidized rents for low-income tenants. Another effort, the Charlotte square development in Newcastle upon Tyne, resulted in the construction of inexpensive and attractive modern housing within the city's ancient walls. This marked the first time an industry leader in building private homes committed such large resources to urban renewal.

In 1980, the company created Barratt American Inc., a California-based subsidiary. The United States was chosen as a site for expansion because of its thriving housing market and economic stability. Through direct sales, identifiable market segmentation, and low prices, it quickly entered the highly competitive market. In a few years, Barratt successfully established itself as one of the leading firms in the U.S. housing industry.

One of the most innovating aspects of Barratt's U.S. marketing strategy was the package deal available to first-time buyers. The company offered everything from domestic furnishings to trade-in deals on old homes, and U.S. customers often needed only to make a small downpayment in order to become residents of a Barratt house.

Barratt sold its products through Sears, Roebuck & Company, where potential customers could browse through a fully furnished condominium display. By selling small, inexpensive units in this way, the company provided a new opportunity for consumers formerly excluded from purchasing a home. Whereas the average price of a California house hovered around $120,000 in the 1980s, a Barratt unit could be purchased for $50,000. With these marketing programs, Barratt hoped its trademark would become as recognizable as that of an American car manufacturer.

Yet, while Barratt's American subsidiary captured a significant portion of the housing market in southern California, it began to experience difficult times. Rising unemployment, high interest rates, low housing starts, and the lengthy approval process to secure planning permission to sell some of its units all contributed to a decrease in sales. Nonetheless, Barratt remained confident that California's rising population and its growing affluence would work in favor of the company's U.S. investment.

In addition to its U.S. subsidiary, Barratt had home-building operations in 40 locations around Scotland and England in the late 1980s. In addition to these holdings, Barratt exhibited a talent for the development of leisure properties. Seven luxury resorts, constructed by Barratt Multi-Ownership and Hotels Limited, were located in attractive settings of the Scottish Highlands, Snowdonia, and the New Forest. Furthermore, Barratt's timeshare apartments in Costa Del Sol, Spain, had an impressive market reception. This led the company to construct two new resorts on the Mediterranean coast. These developments offered vacationers attractive dwellings in addition to generous amenities and afforded Barratt the position of Europe's market leader in timeshare apartments.

Barratt also participated in an area within the industry known as property investment and construction. By concentrating on specialist building contracts in the industrial and commercial sectors, the company gained a large financial return. Successful projects included the construction of an office building of bronze tinted glass and natural stone in Glasgow and the completion of factory units at the Stoneywood Industrial Park in Aberdeen.

Although the company had a long way to go in achieving its goal of ranking first in the U.S. homebuilding market, Barratt continued to perform well overall during the 1980s. Having grown in just less than 30 years from a small operation into a network of subsidiaries both in the United Kingdom and California, Barratt appeared to have a very promising future in the worldwide construction industry.

Overcoming Challenges: 1990s and Beyond

The early 1990s, however, were marked by faltering residential property markets in both California and in southern England. Having extended itself in both of these areas, Barratt found itself in a vulnerable position and began to post losses. During 1991, Chairman John Swanson made a hasty departure and founder Sir Lawrie Barratt was called out of retirement to rekindle the company's fortunes. He then tapped longtime company executive Frank Eaton to fill the CEO role.

Under the leadership of Sir Lawrie and Eaton, the company began to see a turnaround. Barratt shuttered unprofitable ventures, and soon the U.K. housing market began to rebound. In 1996, the firm announced plans to increase its housing output from 7,000 to 11,000 units per year by 2000. That year the company outperformed the U.K. housing industry in terms of pretax profits and earnings per share as well as housing completions. Success continued in 1997 as Barratt reported a 35 percent increase in pretax profits.

Sir Lawrie--confident Barratt was on the right track--retired for good in 1997. With Eaton at the helm, the firm's good fortunes carried on into the new millennium. During this time period, merger activity in the U.K. industry began to intensify. In fact, seven of the industry's top 12 firms had teamed up. Barratt, however, had significant land holdings and maintained that it would remain out of the acquisition arena. The company's financial statements continued to boast positive results and during 2002 the company achieved record sales and profits. Sales rose by 19 percent that year, reaching £1.79 billion. Market conditions--including strong demand, low interest rates, and short supply--continued to bode well for Barratt.

As the company celebrated its good fortune, it was blindsided by a sudden loss. In October 2002, Eaton was killed in a traffic accident. David Pretty, the firm's managing director, was named CEO and Charles Toner became a non-executive chairman. As the industry mourned the loss of one of its top executives, Barratt's new management team was confident it would continue Eaton's record of success in the years to come. During 2003, the company's financial position was solid and it had little debt. As it stood to record its 11th year of successive growth, Barratt Developments appeared to be well positioned as a leader in the U.K. homebuilding industry.

Principal Subsidiaries: Barratt Scotland Ltd.; Barratt Northern Ltd.; Barratt Midlands Ltd.; Barratt Southern Ltd.; Barratt South East Ltd.; Barratt American Inc.

Principal Competitors: The Berkeley Group plc; George Wimpey Plc; Persimmon plc.


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