Air of confidence at flagship store

New management, a €5m facelift and a €10m injection from its bank owners are aimed at reviving the fortunes of Arnotts

ARNOTTS CHIEF EXECUTIVE Nigel Blow bolts off towards the Coach boutique on the ground floor of the vast department store as we begin our whistle-stop tour of the shop’s new layout.

He sets a challenging pace. Chairman Mark Schwartz, whose day job involves running Boston-based consultancy Palladin Capital Group, adopts an altogether more leisurely gait, soaking up the buzz of the store on Tuesday morning.

Blow and Schwartz have slowly but surely been reshaping the fortunes of Arnotts amidst the worst recession in living memory. There’s a new Bewley’s cafe downstairs while Clodagh McKenna has taken over two restaurants on upper floors.

Coach is one of a number of upmarket brands that have been introduced to the store, while menswear has been consolidated on the ground floor and given space to breathe.

Downstairs a new technology zone – with an Apple store as its centrepiece – is flanked by new outlets run by Mayo sports retailer Elverys and a discreet outlet of British book retailer WH Smith.

The Bargain Basement shop has been halved to allow a bigger display for the store’s china and otherware products. A new display for ladies shoes is being built which, when finished, will be the biggest in Ireland.

In all, €5 million was spent giving the cavernous 300,000sq ft space a major facelift last year in a bid to revive the store’s fortunes. About half of this was spent by its concession holders.

“It’s a sign of their confidence in Arnotts,” Schwartz says quietly.

Arnotts’ upper floor offices, once a throwback to a different era, have also been given a fresh look with staff who had been based in the former head office of Independent News Media on nearby Middle Abbey Street relocated back to base in what was once a large storage room.

“It made sense to have everyone based here,” Blow said. “It’s also given the place a modern look, which is important when you’re bringing buyers in for meetings.”

Blow, who previously ran Brown Thomas in Dublin, and Schwartz took over in 2010. They describe it as a “watershed” year.

That’s when the banks – Anglo Irish Bank and Ulster Bank – called in their loans and Richard Nesbitt’s dream for a new Northern Quarter retail, residential and commercial scheme covering 1.4 million sq ft collapsed.

Palladin and Schwartz were brought in to run the show for the banks, which are owed about €316 million by Arnotts. Blow, who hails from Leicester, arrived initially as a consultant before taking on the role of chief executive full time.

The pair started by trying to purge Arnotts accounts of their toxic property exposure. A writedown of €248 million was taken in the year to the end of January 2010.

Another €2.3 million was wiped off in the following year, the latest for which accounts are available.

Payroll costs have been reduced by about €3 million a year and shops in the Jervis Centre and the Stillorgan Shopping Centre have been closed.

Stock levels were also reduced by €2.5 million last year.

Most of the flagship Henry Street store has been refurbished.

The banks have shown their support by providing new working capital – €10.2 million was injected into the business last September – and there is less focus now on discounting, endless sales and price promotions.

The other properties that comprised the Northern Quarter are nearly all let but won’t be developed by Arnotts. More likely, they’ll be sold over time but that will be a call for the banks to make.

“People know where we are if they want to make us an offer,” says Schwartz with a wry smile. “We are in no rush to sell.”

Blow and Schwartz feel that, for the first time since walking through the doors of Arnotts almost two years ago, their sole focus can be on trading in the store. Arnotts increased its sales by 3 per cent in the year to January 2011. Its Ebitda (earnings before interest, tax, depreciation and amortisation) rose to €6.2 million in the year from just €117,000 previously. A hefty €17.7 million interest bill and other costs, however, dragged it into the red that year.

Since then, Arnotts has completed another trading year covering the 12 months to the end of January 2012. Accounts won’t be available for many months but Blow described it as another “tough” year for the retailer. This is hardly a surprise given that Ireland remained mired in recession and consumer demand continues to be depressed.

“We certainly made some big steps forward in the business. In a way, it was a good time to be getting some of those renovations out of the way.”

How did Arnotts perform in terms of revenues last year?

“We saw a slight reduction in sales but it was compensated for by an improvement in gross profit margins,” he explains.

This year, there will be less disruption from refurbishment works. “Hopefully from mid-year, we will be trading without too much disruption,” Blow says.

What about the impact of the rise in the rate of VAT to 23 per cent from January 1st?

“It’s hard to tell right now. We haven’t noticed a significant impact since it was implemented although, for a large chunk of that time, we were trading in sale [mode post Christmas]. We haven’t passed everything on.”

Blow was “disappointed” the Government hiked the VAT rate but acknowledges it could have been worse.

“The alternative was another hit on personal taxes, which would have been as damaging, if not more damaging.”

Schwartz would like to see the Budget moved from its traditional December date to avoid depressing the run-in to Christmas for the retail trade.

“The timing of the budget really is rough for retail. It would be great to persuade them to do it some time other than December.”

Blow and Schwartz insist they are here for the long haul and weary of being asked when Arnotts will be sold and to whom.

Instead, they prefer to think in terms of growth. They’ve revamped Arnotts website and want to ramp up the online sales to a more meaningful level. They are even talking boldly about expanding outside Dublin by possibly opening in Cork, Galway or Belfast, where Arnotts had a presence back in the day.

It’s a throwback to the boom years when every retailer had ambitions for new stores although it jars somewhat in the current climate, especially given Arnotts financial predicament.

“There’s some great [property] deals out there,” Schwartz says matter of factly. There’s nothing firm in the offing but something might happen this year, he adds.

Whether that’s a slimmed down version of the department store or a specific concept – Arnotts Home might be an example – remains to be seen.

“Arnotts has great potential in Ireland. We are looking at things. We need the right location. We’re not in a rush.”

It’s fighting talk from the slick American businessman. He also has a view on when the Irish economy might return to growth.

“We expect that 2012 will be another difficult year for the company and for retail. I’m hoping that 2013 will see the turn.”