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The factory hand who put the big brands online

Matthew Moulding, co-founder of fast-growing online retailer The Hut, is closing a "transformational" deal on the day the Financial Times visits him. Indeed, it is reveal-ed later as a £14m share placing with investors that include Balderton Capital and William Currie. The move values the six-year-old start-up at £32m ($45.8m, €37.5m) and paves the way for a flotation in London next year.

Mr Moulding dashes out at one point to tie up some loose ends out of earshot. But he soon returns, promising "to be as honest as I can". He talks at length and with candour about his "sob story", as he puts it, of an upbringing; his gruelling business education in the telecoms empire of the famously hard-nosed billionaire John Caudwell; and The Hut's plans to create multiple online brands.

Few British consumers have heard of The Hut. But millions of them are transacting with the company when they order CDs, DVDs or computer games online from Dixons, WH Smith and Tesco. The Hut runs the online entertainment sales operations of several well-known UK retailers on an own-label basis. This high-turnover activity saw the business raise sales from £1m in 2005 to about £52m last year. Revenues are expected to top £90m this year.

The snag is that The Hut must hand over a big chunk of profits to brand holders. Earnings before interest, tax, depreciation and amortisation were accordingly just £1.4m in 2009. The mission of Mr Moulding is therefore to create a host of own-brand online retail websites. By exploiting The Hut's economies of scale, he promises to eliminate delivery charges: "We want to bring our low-cost operating model to new product sectors and bring better value to the consumer."

The 38-year-old seems at ease at The Hut's nondescript headquarters in Northwich, north-west England, bantering with some of his 180 staff as he heads to his office. But he confesses to being "a very insecure person", who never expected to start a business. As he was growing up, his father scraped a living by buying a lorryload of Tarmac each day and cold-calling householders with an offer to resurface their driveways. "You soon realise the value of money when your Dad's gone out for a day's work and made nothing because the weather's bad."

Mr Moulding reveals that he "lost his way" when his parents split up. He was expelled from college after he persistently played truant to visit his brother in prison, and worked in a factory. He might have stayed there if his old economics teacher, Steve Smith, had not tracked him down and chivvied him back into education and a university degree.

By 26 years old, Mr Moulding was earning more than £100,000 a year as an accountant for a financial printer, commuting weekly between the job in London and a wife in the north. To work closer to home, he joined the Stoke-on-Trent base of Mr Caudwell's Caudwell Group, owner of the Phones 4U retail chain.

Mr Caudwell, an inspired entrepreneur who sold out for £1.46bn in 2006, was unforgiving of failure and generous in rewarding success. Mr Moulding, who earned £500,000 a year as a junior finance director, says he had sweaty palms in every board meeting he attended. He regularly worked 24-hour stints. His wife, he says, "buggered off with her boss, which you can understand".

The upside of working for Caudwell Group was that "you were given an unlimited flow of funds to either make a success or hang yourself. "That gave me the confidence to do my own thing," says Mr Moulding.

The result was TheHut.com. Mr Moulding had been impressed by the cheapness of Play.com, a Channel Islands-based independent retail start-up, when buying CDs as a consumer. In 2004 he set up in competition with Play.com,using stake money of £500,000. He put in £200,000 and became chief executive. Co-founder John Gallemore, another ex-Caudwell executive, and now chief operating officer of The Hut, supplied £125,000. The rest came from friends and family.

"We lost a fortune in weeks," Mr Moulding says. The big mistake was to "outsource marketing to Google" by paying it for click-throughs to The Hut's website. Sales were abysmal. The founders desperately rang round big retailers offering to launch online entertainment sales operations for them. Eventually, the supermarket chain Asda agreed.

The Hut is an appealing partner for big retailers because of its expertise andscale: it sells 11m CDs, DVDs and computer games a year. The company avoids UK sales tax by basing its distribution operation in the Channel Islands, which are separate from the UK mainland for tax purposes. Retailers pay a commission on each sale.

The Hut now eschews pay-per-click and drives sales with websites that maximise online search listings and with promotions. Supported by its core business, it is building up TheHut.com, and launching sites such as Mybag.com, a fashion accessories specialist, and Gifted.com, a gifts retailer.

The Hut tried to buy the Woolworths name to use as an online brand after the UK high-street chain collapsed in 2008. Shop Direct Group triumphed, leaving Mr Moulding to supply the victor with the entertainment segment of its new Woolworths site. The Hut made up for this disappointment by acquiring Zavvi, the failed upstart high street retailer, in 2009 and creating an online entertainment store around the brand.

It is a fair bet that a flotation would fund other, bigger acquisitions. Mr Moulding is, meanwhile, likely to be-come less confiding once London Stock Exchange disclosure rules constrain him. In his enthusiasm to explain the business, Mr Moulding hands over an internal strategy document that is revealing even without the parts designated off record.

It would be a shame if the City turns Mr Moulding into a slick corporate figurehead. His lack of pretension is his charm. A picture on the wall shows a luxury Dubai hotel where he regularly goes on holiday with his second wife and their three children. But he also goes caravanning in North Wales, a traditional holiday choice for working-class north-westerners.

"Colleagues laugh at me about that," he says. "But if you offer my kids a £10,000 holiday in Dubai or a caravan trip, they're equally happy with either."

Hope, cash and staff

Matthew Moulding, co-founder of The Hut, has built an online retail group with sales of more than £50m in just six years. He has this advice for would-be entrepreneurs: *"Be very sure you want to do this; you'll be gambling a lot of your own money. There were many times during the first three years of The Hut when I was very upset at the level of investment that I had made. Fortunately, it all came good." *"Be optimistic. When you're starting up, the optimism is so blinding that every hurdle appears very small. When you've jumped them, you look back and think, 'Hell, any one of those could have brought me a lot of pain.' " *"Make sure you have enough cash at all times. You should always know where your next line of cash is coming from. To a business, cash is like blood . . You could have the best-performing business in the world, but if there's no cash running through it, it's dead." *"If you're the best employee in the business, you're in a bad place. To attract the best talent, give them equity. We keep basic salaries low, but bonus incentives are high. If people deliver, you should pay them more than they get elsewhere. The guy who heads up games-buying for us started by working in customer care in Christmas 2006, earning £4.50 an hour. Last year, at 27 or 28 years of age, he probably earned £80,000."

http://www.ft.com/cms/s/0/2c32e92a-685d-11df-a52f-00144feab49a.html