Arnotts, but not as we know it

December 12, 2010

The Sunday Business Post

The Arnotts department store in Dublin will undergo big changes next year, as its bank-appointed management team develop plans to make it “a really great retail company”.

Nigel Blow, chief executive of Arnotts, said it would invest in ‘‘very significant changes through the course of next year’’, including new brands, expanded floor space and a revamped online store.

The retailer’s electronics section will grow, with the introduction of a dedicated Apple store, footwear will be moved to a new department and an expansion of menswear will continue.

‘‘You will see new layouts, things put in different places.

We’ll be expanding space for some product categories and refocusing others,” said Blow, who was previously chief executive of Brown Thomas.

That process has already begun, with the addition of brands as diverse as Bobbi Brown cosmetics, Reiss clothes, G-Star jeans and BoConcept furnishings.

Overall, though, Arnotts is stocking fewer brands than before. ‘‘Trying to be everything to everybody was a mistake.

There was this complete sea of merchandise, all at the same height. Now we have less stock, but we take in more money because it’s the right stock. We should be conscious all the time of who we are targeting and why,” said Blow.

Blow said that the business had ‘‘become very promotional’’, with a focus on sales and discounts.

‘‘Every message from Arnotts was about some discount, rather than what great brands we have. It used to go into a sale and might be in sale mode for a couple of months. As a result, people would say, ‘I’ll wait until they give 20 per cent off’,” he said.

The bad news for customers is that those days are at an end.

Under its new management, Arnotts had one 20 per cent-off sale weekend this year, compared with four last year. The post-Christmas sale would start on St Stephen’s Day, but would conclude by the end of January when all stock would be back to full price, said Blow.

He was brought in to run Arnotts after Anglo Irish Bank and Ulster Bank took control of the firm earlier this year, in a bid to secure their €300million debts. Mark Schwartz, head of US restructuring firm Palladin Capital, became chairman, and Ray Hernan, a former Selfridges and Brown Thomas executive, is chief operating officer.

Schwartz, who was first approached by the banks almost a year ago to ‘‘take a look’’ at Arnotts, said the retailer had suffered from ‘‘a lack of retail focus and direction’’ in recent years. ‘‘The last regime became too focused on property development, and not the nuts and bolts of the business.

They lost sight of the core retail business,” he said. ‘The banks have taken a lot of flak, but with Arnotts, they have taken exactly the right strategy.

They said, ‘Let’s bring in people who understand retail and turn this around’.” The company’s financial year runs to January 31, and Schwartz said he expected the figures to show Arnotts ‘‘in a much better position’’ than last year, despite the economic environment.

‘‘I’m very confident we will be significantly ahead of last year, both in earnings and cashflow,” he said.

‘‘The business is in a very solid position now. We are cashflow positive, business is up on last year, we have new working capital. Arnotts is in the strongest position it has been in for years. It has a very strong future.”

In the meantime, there’s the small matter of Christmas – and the run in has not been easy so far. On the Saturday of Arnotts’ recent 20 per cent-off weekend, 50,000 people packed into the city centre for a protest march, deterring shoppers.

That coincided with almost two weeks of snow and ice, followed by the draconian budget last week.

‘‘If we see locusts, we’re going to be alarmed,” said Schwartz. The snow and ice had a ‘‘huge impact’’ on retailers, as people stayed at home and public transport was curtailed, but should not make a big dent in Arnotts’ finances in the longer term. ‘‘The good news is that Christmas is still coming and people will still buy gifts.

They just have to catch up,” Blow said.

He is using the Christmas season to bring ‘‘retail theatre’’ and entertainment to Arnotts. Its Christmas launch included people dressed as realistic-looking Christmas trees, while Handel’s Messiah has been performed by 50 singers dotted through the store, taking shoppers by surprise. An ice rink on the roof has attracted more than 10,000 people so far.

Blow said that Arnotts customers had been ‘‘hugely supportive of the brand’’ during the uncertainty about its future, and amid reports it could go into liquidation or be sold. ‘‘On the day there was a particularly negative story, we had our best day’s trading,” he said. ‘‘We have had customers thank us for our efforts in turning it around.”

Arnotts has about 1,000 staff, including those who work for in-store concessions. About 25 or 30 staff have lost their jobs since Schwartz and Blow took over, including the former management and a front of house retail team.

No further losses are expected, and the store has recently hired 40 people for the Christmas season. Its Boyers store, which faced closure under the former owners, will remain open, while an Arnotts store in Stillorgan is likely to be overhauled.

Blow acknowledged there was ‘‘pent-up concern’’ among workers about job losses, but said the new management had a good relationship with the unions at Arnotts.

He has been holding a series of staff forums, allowing workers to ask questions and give their ideas.

‘‘We’ve had great feedback from them on what they think of the store,” he said.

The blueprint for the changes at Arnotts is based on a fictional customer called ‘Sarah’, who emerged from market research as its core customer. ‘‘She works, she tends to have a family, she likes to travel,” said Blow. ‘‘She is fashion-conscious, but it’s not about being head-to-toe in designer clothes. She wants to look well and wants her home to look well.

We gave her a name and expanded her profile. Who’s her husband? Where do her parents shop? What’s important to her in her shopping experience?” Blow said the store’s market research showed that shoppers were ‘‘less resistant’’ to price issues than expected. As a result, some of the new additions are more upmarket brands and are doing well.

Schwartz said that Arnotts was getting better at what it stocked. ‘‘We are looking quite scientifically at what we own, what we sell and what it costs us. Under our regime, no one buys anything unless they know how much they’re going to sell and when, and for what margin.

We should know every day what’s doing well and what’s not doing well,” he said.

The former management’s plan for the so-called ‘Northern Quarter’ development is ‘‘definitely postponed for the time being’’, according to Schwartz. ‘‘Let’s make Arnotts as strong as possible first,” he said. Despite having large debts with Anglo Irish Bank, the company has no involvement with the National Asset Management Agency (Nama).

He said the new management had sought a commitment from the banks that they would not sell Arnotts in the short term. ‘‘There are no ownership changes planned,” he said. ‘‘You don’t turn around a retailer overnight, so let’s focus on making this a really great retail company first. I think it’s a great company today; I think it can be even greater.”