World of fashion on edge over court ruling
Aurora's bosses talk to Tom Lyons about their landmark legal battle with Dunnes, and how high rents are suffocating margins
Ian Galvin and Richard Glanville took their seats in the Supreme Court last Monday. Smartly turned out, the two fashion executives were entering their sixth year in an epic battle over copyright with Dunnes Stores.
They listened attentively to what is a landmark action for the rag trade. Aurora, the company behind high-street retailers such as Karen Millen and Coast where Galvin and Glanville are executives, was taking on its rival Dunnes over the copying of a woman's striped shirt and a knitted top.
Damages, if the court finds in Aurora's favour, will only run into the tens of thousands but legal bills for both sides have topped €1m each because of the importance of the case.
Last year, the High Court found in Aurora's favour that its designs by Karen Millen were copied by Dunnes. This was challenged to the Supreme Court by the family-owned retailer which is concerned about the ramifications of the High Court's ruling.
The case, which the Supreme Court has reserved judgement on, centres on the interpretation of an EU regulation on the protection of fashion designs. The issue is, does Karen Millen hold the right to an unregistered community design to prevent others copying it or not? The Irish court's decision will have ramifications for all retailers when it is delivered in eight weeks' time.
After the court case, Glanville, who is chief financial officer with Aurora, said he was sorry to have had to take the case. "What would normally happen if we thought someone was copying us was we'd have a word with the company," he said.
"We'd normally have a contact there and say: 'Come on guys, that is too close. There are no obvious differences, you've stepped over the line.' Nine times out of 10 they will either withdraw it from sale or pay us the profits."
This time, however, Dunnes decided to slug it out in the courts.
"It is protecting our intellectual property rights," Galvin, chairman of Aurora Ireland, added. "We have an in-house design team. Everyone interprets to a point, but you don't make it that blatantly obvious."
"It is not necessarily about us any more," Glanville said, "It is a landmark case. It is not about the value or the profits from the blouse, it is a landmark case we are both trapped into."
Both Glanville and Galvin would rather be focusing on Aurora's business in Ireland, which at the peak of Ireland's boom in 2007 had sales of €100m, but this has since halved to €54m in 2012.
The group which it is owned by employs 900 people here in 30 free-standing stores and 44 concessions in Ireland.
"Hardly any of our solo stores are making money," Glanville said. "We are making money in the concessions, where the rental goes up and down with our sales levels."
Aurora, Glanville said, was making "heavy losses" in some of its stand-alone stores because of high upward-only rent deals agreed at the top of market. Since the retail market fell off, Aurora has agreed lower rent deals with five landlords, but is in day-to-day talks with five others. "Rents are a huge problem for us in Ireland," Glanville said.
"Our revenue and like-for-like sales have fallen year after year after year and our rents haven't. A number of our rents for good or bad reasons were taken out at the height of the property boom here so they are really unsustainable."
Galvin identified rents at the group's Karen Millen store on Grafton Street as being "untenable". He said he feared Dublin's once most exclusive retail street was falling into disarray. "Only for Brown Thomas is there, what else is left on Grafton Street? Grafton Street is not like other premium streets anymore. It is not like Paris, or New York, Milan where the standard is there," Galvin said. "I think Henry Street is better. It is still true to its location and the brands that are there."
In Britain, Aurora, which is owned by Icelandic bank Kaupthing, went through a painful restructuring process in 2009 which saw the company go into administration there.
In Ireland, a note in the accounts to Karen Millen Group Ltd, one of Aurora's main firms here, states that the continued support from its UK parent is reliant on it producing a viable business plan here underpinned by rent reductions. Glanville said the note had been included because of the pressing need for its Irish stores to reduce their costs to reflect sales.
"You can't afford to keep a country or a region running at a loss and soaking up cash year after year after year," Glanville said. Restructuring the group in Ireland he said was "the last thing we want to do. You waste a lot money on legal fees and put people's jobs at risk".
Aurora is considering spinning off its Coast brand into an independent company, Glanville said. The group already separated its Karen Millen brand out into an independent entity in 2011.
Glanville said Aurora had no immediate plans to sell either brand. "We are only considering our options," he said. Separating the two brands into standalone businesses is seen in the market, however, as a precursor to their eventual sale in years to come. Aurora's two other brands, Oasis and Warehouse, remain within the group structure but it is possible they may also be put in time into independent companies with their own separate management teams. Selling the brands as individual companies is considered the best way to return value to the group's owners.
Waterford-born Galvin, who is a veteran retailer, said his focus was on growing sales and ensuring customers had a good shopping experience.
"We had a good Christmas and January," he said.
"They are not fantastic figures but they are positive figures. It is not about cutting prices but ensuring the product has to be sufficiently different and true to the brand."
Earlier this month, Aurora had digital retail guru Hash Ladha, who is deputy managing director of another of its brands, Oasis, in Ireland to advise the group on its digital strategy here.
"It's about bricks and clicks," Ladha said, "We are investing in our stores but also developing our online strategy." Ladha said consumers still wanted to purchase clothes in shops but they were increasingly doing their research online beforehand.
Oasis has an established Facebook page with 7,500 fans and its own Twitter feed to keep users updated with its latest offerings.
"You need a duel strategy," Ladha said of stores and digital. "Ten to 15 per cent of our business is online," Galvin added. "Our bricks and mortar has to tighten up but we need to ensure the customer experience remains right."