Wednesday 18 September 2019

Big trouble in store if Arnotts fails to tackle debt problems

Emmet Oliver Deputy Business Editor

WHILE it has the dimensions of a grand boulevard, O'Connell Street and the surrounding area has for years been the poor relation in terms of retailing in Dublin.

When leading retail concessions from abroad have arrived in the city they've tended to choose Grafton Street or the Dundrum Town Centre to locate, despite the expensive rents at these locations.

O'Connell Street and Henry Street have played host to some of the biggest names in retailing over the decades -- Clerys, Roches Stores and of course Arnotts. But none of these retailers has been super profitable in the way that Galen Weston-owned Brown Thomas has been across the river.

Clerys, while stable, has never reported huge profits and Roches Stores was taken over a few years ago by UK retailer Debenhams. Arnotts was until recent years the only retailer north of the river with the high-end retailing image that attracted affluent Celtic Tiger shoppers.


But O'Connell Street/Henry Street hasn't only been losing out to its more illustrious southside rival, it has also been losing out to various suburban shopping centres like Liffey Valley, Dundrum, and the Pavilions in Swords and Blanchardstown.

In an attempt to counter this and re-shape the entire retailing experience north of the Liffey, barrister Richard Nesbitt and the board of Arnotts have been trying to push ahead with the highly ambitious Northern Quarter scheme.

This would have been a gargantuan development covering up to 1.4 million square feet of retail, office and residential space, filling out large parts of Henry Street, O'Connell Street and Liffey Street.

However, the scheme was conceived in the days before the credit crunch and before the Irish property market took a nosedive, beginning in early 2007. The most recent results from Arnotts show the damage wrought on the company's balance sheet by its huge property assets, which have plunged in value.

In fact, the last set of results showed an excess of liabilities over assets, in plain terms the company's balance sheet was insolvent. The blame for this situation is shared by a number of parties, but clearly the board of Arnotts has to take at least some of the blame.

A debt of €300m is a very large burden for a company with annual sales of just over €128m and which last year made an operating loss of €29m.

The banks which are now poised to take control of Arnotts appear to be very unhappy with the performance over recent years and this is understandable. They are now expected to take action to make sure the company is turned around.

The message from the banks, as disclosed to the Irish Independent yesterday, is Arnotts should be all about retailing from now on, not property development.

In a supreme irony, a former Brown Thomas executive, Nigel Blow, has been working in Arnotts since earlier this year trying to return the company to its roots as simply a retailing company.

Mr Blow was sent in to Arnotts by the American Paladin Capital Group, which now seems to be calling a lot of the shots at the company at the behest of the banks.


The presence of this company, which seems to have considerable power, is believed to be unpopular with some of the long-term management team at the store. Internal tensions are reported to be rife.

But the banks' attitude appears to be getting increasingly hard-nosed and their message is: Arnotts must change and change soon.

While Mr Blow and Paladin are believed to be centrally involved in drawing up a new Arnotts business plan, what is the role of the actual owners, the Nesbitt family, led by Richard Nesbitt?

The Nesbitts remain the owners of Arnotts, but of course they own the equity in the business, not the loans. With such a large debt burden, it means the power has shifted from the Nesbitts to the banks. With Anglo holding the majority of the debt, it has become a key player and is believed to be strongly backing Paladin.

The banks have been working with management to "refocus'' Arnotts on core retail. "To this end Paladin were appointed last March to work on refocusing the group and developing its retail operations," a source said.

In corporate-speak, all the talk now is of management and board change at Arnotts. Current incumbents on the board and in management ranks may resist these and that could set the scene for a traditional boardroom battle.

Either way, the banks appear very eager to recover their money from Arnotts and a sale would be a quicker way to do this than waiting for years for Arnotts to trade its way out of its debt troubles. But before either of these options can be considered, Arnotts will need radical surgery as a business and as an organisation.

Irish Independent

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