Partner case: should Hollin & Rye close its 30 weakest cafés?

Stores that lose money after rent rarely recover on their own, so my hypothesis is that closing most of the 30 pays back within about two years, and that the real questions are which few are worth saving and how to close without harming the brand.

1. Step 1: Size the problem

   What a strong candidate does: Candidate: "Before I answer, let me size it. Thirty stores losing about GBP 120,000 a year each is:"

   Annual loss from the 30 stores (GBP): 30 × 120,000 = 3,600,000

2. Step 2: Put it in context

   What a strong candidate does: Candidate: "The other 150 stores make about GBP 22.5 million a year, so after these losses the estate makes about GBP 18.9 million. The losses equal this share of today's store profit, so closing would lift it by about a fifth:"

   Loss as a share of store profit today (%): 3,600,000 ÷ (150 × 150,000 - 3,600,000) × 100 = 19.05

3. Step 3: Closure cost and payback

   What a strong candidate does: Candidate: "Closing costs GBP 250,000 a store, GBP 7.5 million in total, one-off. Against GBP 3.6 million a year of losses avoided, that pays back in about two years:"

   Payback on closing all 30 (months): 30 × 250,000 ÷ (30 × 120,000) × 12 = 25

4. Step 4: Pushback 1: investors

   What a strong candidate does: Partner: "Closing 30 stores will look like failure to our investors." Candidate: "That is a fair concern, but I do not think it changes the answer. Investors usually worry more about losses that continue than about a clear plan to stop them. I would present it as focusing the business on 150 stores that make money, with about GBP 3.6 million a year added back to profit."

5. Step 5: Pushback 2: the station stores

   What a strong candidate does: Partner: "Fifteen of the 30 are in train stations. Commuters are coming back. Give them time." Candidate: "That is a new fact, so let me test it. What does a station store sell today, and how much of each extra pound of sales is contribution?" Partner: "About GBP 600,000 a year each, and about 40 pence in the pound. Assume they lose the same GBP 120,000 as the average." Candidate: "Then if sales recover by 20 percent, the loss per store becomes:"

   Loss per station store after a 20 percent recovery (GBP a year): 120,000 - 600,000 × 0.2 × 0.4 = 72,000

6. Step 6: What recovery would it take?

   What a strong candidate does: Candidate: "To break even, sales would need to rise by half. That is far more than a return of commuters is likely to bring. So I hold the view, with one change: rent is the only lever big enough. I would use the closure plan to ask the station landlords for lower rent, and close any store where they say no."

   Sales increase needed to break even (%): 120,000 ÷ (600,000 × 0.4) × 100 = 50

7. Step 7: The conviction test

   What a strong candidate does: Partner: "So you are sure?" Candidate: "Sure enough to act. What would change my mind is a landlord offer that cuts rent on a station store by at least GBP 72,000 a year if sales recover by 20 percent, or by the full GBP 120,000 if they do not, or evidence that sales there are already up by close to half." Partner: "Have you ever had to close something you started?" (A fit question inside the case. Answer briefly with a real example, then return to the case.)

I would tell the CEO to close the 30 loss-making stores in phases, and to open rent talks on the 15 station stores first. First, the 30 stores lose about GBP 3.6 million a year, about 19 percent of store profit. Second, closing them pays back in about 25 months. Third, even a 20 percent sales recovery leaves each station store losing about GBP 72,000 a year; breaking even would need about 50 percent more sales, so only a rent cut can save them. The main risk is staff morale in the towns affected. Next, rank the 30 by lease end date.

Risks a strong answer names: Some customers of closed stores may stop buying from the brand rather than walk to the next store; Lease exit costs may be higher than GBP 250,000 per store where leases run longer; Morale in the remaining 150 stores may fall if the closures are poorly explained.

Next steps: Rank the 30 stores by loss, lease end date, and exit cost; Ask each station landlord for a rent cut large enough to reach breakeven within 12 months; Offer staff roles in nearby stores before any redundancy.