Arnotts is first, it won't be the last
THE decision of the banks to take control of Arnotts is the latest indication of just how tough conditions have become out on the main street. With the value of retail sales still down by more than a quarter on its late-2007 peak expect more casualties sooner rather than later.
Last Wednesday, news broke that Anglo Irish and Ulster Bank, who between them are owed at least €300m, were converting some or all of their loans to Arnotts into shares. This is likely to result in the existing shareholders, mainly the Nesbitt family, Boundary Capital and clients of Anglo Irish private banking, being virtually wiped out.
The writing had been on the wall since last February, when Boundary told its shareholders that it was writing down the value of its 28pc Arnotts stake to zero. Although the banks agreed to roll over €260m of debt at that time, it was well known in retail circles that the banks were now calling the shots at Arnotts with former BT boss Nigel Blow acting as a "consultant" to Arnotts.
Last February also saw Arnotts announce the closure of its Jervis Centre store. This was supposed to serve as a temporary Arnotts outlet while it went ahead with its €750m "Northern Quarter" development on the site of its Henry Street store. Closing the Jervis Centre outlet was effectively an announcement that the banks had called time on the Northern Quarter.
It may be no consolation to Arnotts chairman Richard Nesbitt, whose family have controlled Arnotts for more than a century, but his company is not the only Irish retailer experiencing financial difficulties.
In May 2009, Golden Discs went into examinership, O'Brien's Sandwich Bars went into liquidation in October 2009 while bookseller Hughes & Hughes went into receivership in March 2009.
While slimmed-down versions of these businesses have since re-emerged the message is clear: with nervous consumers keeping their hands in their pockets, it's brutal out there for retailers.
This means that Arnotts won't be the last major Irish retailer to run into financial difficulties. Already there are rumours of at least one other big-name operator in trouble. Unless there is a totally unexpected recovery in consumer spending, things are going to get a lot worse on the Irish main street before they get better.