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Retail Week on the Road: Ireland

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This week’s final instalment of our On the Road series visits Cork, where food specialist Musgrave is in expansion mode, before heading to Tallaght to visit department store chain Heatons, and Dublin’s upscale department stores Arnotts and Brown Thomas.

As August got under way, Irish retailers, like their UK counterparts, had taken a hit from bad weather.

At the start of the month Tesco in Ireland reported a rise in sales of wintry peat briquettes while summer Staples, such as salads, were slow moving.

Wet summer weather was one more unwelcome challenge to confront in a market already facing some of the harshest retailing conditions in Europe, as the country took action to address the economic crisis.

At the time of publication, Dublin’s famous O’Connell Street department store Clerys looked likely to pass into the hands of restructuring specialist Gordon Brothers, the latest casualty of a savage downturn.

But the most fleet of foot Irish store groups have looked adversity in the eye and adapted to meet – and in some cases beat – the pressures that have brought others to the point of collapse.

The numbers paint a stark picture. In the second quarter of 2012, retail sales in Ireland fell 4.3% overall – the 13th quarter in a row of declining revenues – according to industry body Retail Excellence Ireland.

Seasonal goods such as garden lines were hit particularly hard because of bad weather. The rain, and low consumer morale, also affected new season’s fashion lines and womenswear suffered a 7% plunge.

Musgrave seizes opportunities

As austerity continues to batter Irish retail, however, there is good news too, as businesses reinvent themselves to better cater for a changed consumer.

Chris Martin boss of Musgrave

Chris Martin boss of Musgrave

Among them is Musgrave, the Cork-based food specialist. Musgrave – which runs Budgens and Londis in the UK and has shops in Spain – primarily works with independent retailers that in Ireland trade under banners including SuperValu and Centra.

However, the group broke with tradition by acquiring embattled Dublin-based Superquinn last year. It is running the chain itself rather than through partnerships with independent retailers.

Musgrave chief executive Chris Martin says the E229m (£180m) takeover of 24-store Superquinn was both a reflection of how food retailing conditions have changed and an opportunity too big to miss.

Although Musgrave usually works with independent retailers, it decided to do things differently to continue to grow in Ireland despite the economic environment. “We made a decision that we were going to have to buy stores and run them ourselves,” says Martin. “That’s a big change.”

The acquisition of Superquinn gave Musgrave market share in the capital and its hinterland, where Superquinn is strong, bringing Musgrave’s market share there to 22% at the time of the deal; and it brought the chance to find out more about running a retail business.

“We went in to understand it,” says Martin. “We had to address a lot of issues. A lot of damage had been done because of lack of investment – we were literally putting lightbulbs in.”

At the time of the acquisition Superquinn was enduring like-for-like declines of between 7% and 8%. That has now improved and Martin believes like-for-likes will soon be positive.

A revamped store will open in Blackrock next month, providing an insight into how Musgrave intends to further build Superquinn. “Our focus is very much on running the stores as a business and giving us the capability to take on more stores,” says Martin.

Despite representing a departure from how Musgrave usually does business, Superquinn has much in common with the overall approach at the group, where the emphasis is on fresh food and localness.

Those characteristics are enabling the retailer to perform in an unforgiving retail environment, in which there has frequently been food price inflation during the downturn and in which, Martin says, the consumer has changed “fundamentally”.

The consumer had previously gone to discounters such as Aldi and Lidl as a one-off, but discount stores are increasingly part of mainstream shopping, he points out. “It went from ‘I need to save’ to ‘I have to spend less and grocery is something I can manage’,” he explains. “We’ve banned the word discounters. Aldi and Lidl are part of the mainstream.”

But Martin is confident that Musgrave’s network of more than 900 shops in the Republic has unique appeal. “We can compete by having really good, local retailers,” he maintains.

“People never quite comprehend the passion of an independent retailer. Some of the standards are second to none. You’re looking in some cases at someone who is investing millions of their own money.”

Musgrave retailers emphasise their localness by varying their range. A proportion is bought independently and locally sourced produce is emphasised, which gives the retailers added appeal because of the association with sustaining local livelihoods.

Similarly, the retailers’ names often feature on storefronts along with the brand, and they often develop their own lines such as prepared meals.

A reputation for quality fresh food also clicks with the consumer mood, says Martin, pointing to changes in consumption patterns such as the tendency to cook at home and determination not to waste food. In that context, Musgrave has run offers such as free vegetables with a steak.

“We were the first in the market to do those sorts of deals,” says Martin. Last year the retailer managed, including promotions, to cut the cost of a weekly family shop in supermarket chain SuperValu by an average of E30 (£24).

Musgrave has leveraged its clout by enhancing its branded ranges and improving efficiency across the business.

One of the biggest range changes has been SuperValu’s own brand. SuperValu, Musgrave’s bigger supermarket format, accounts for the lion’s share of the group’s sales at E2.4bn (£1.9bn) in 2011, and much energy has been devoted to improvements.

The introduction of the SuperValu range was the biggest product launch in its history, following investment of E20m (£16m) and comprising 1,500 product lines.

SuperValu products have been introduced to Musgrave’s Budgens and Londis UK stores too, the first time that common product has been sold by Musgrave across the Republic, Great Britain and Northern Ireland.

“Our focus has been to give our partners the tools to do the job,” Martin says. “It’s an own-brand range second to none.”

Across the group, Martin believes own-brand sales could grow from E700m (£549m) last year to more than E1bn (£780m) in 2014. The growth of own brand is also a way that Musgrave can ensure it provides value for money to shoppers.

Musgrave has made the most of its scale to enable its retailers to bolster their appeal through loyalty programmes, such as Real Rewards at SuperValu and Smile at Centra.

Costs have been cut by E49m (£38m) to E518m (£406m) over three years, helping to maintain group profits, which last year came in at E71m (£56m) – E1m less than the previous year.

“We attacked our own costs. If you operate across Ireland and the UK, there were duplicate costs that we’ve taken out. We’ve become much leaner and more efficient,” says Martin.

Efficiencies have also been made to the benefit of Musgrave suppliers in many cases, he maintains: “Until the demise of the Celtic tiger the Irish market was very separate from the UK. That still exists, but suppliers are now looking for efficiencies that go across the two markets.”

One of the challenges Martin acknowledges is that trading in Northern Ireland lately has been “exceptionally tough”. He observes: “There’s a couple of things going on. Cross-border [shopping], which was benefiting Northern Ireland, has come back.

“And it’s one of the most heavily shopped places you could come across. Our like-for-likes are growing but it’s probably the toughest I’ve experienced in Northern Ireland.”

Looking ahead, online is likely to be an increasing focus for Musgrave. Martin says that many Irish retailers have traditionally offered home delivery using their own vans, and he intends to develop online capabilities.

SuperValu intends to roll out online nationally this autumn

SuperValu intends to roll out online nationally this autumn

At present, 50 SuperValu stores offer online shopping. “We’re working towards a national launch of online this autumn. It’s complex because of the network of independent retailers – it won’t necessarily be extended to all stores,” says Martin. “The other thing that’s exciting is the range extension opportunity.”

As he looks forward, Martin is realistic about prospects but optimistic that Musgrave and its retailer partners can continue to compete effectively.

“From a market perspective it will be low if not no growth, but there’s real opportunity for strong brands to take share,” he believes.

“The market owes you nothing. What we have to do is enable our retailers to have the efficiencies of the multiples – and the magic dust of personality.”

Heatons focuses on product

On the other side of the country in Tallaght, Dublin, at the head office of 52-strong department store group Heatons, chairman and managing director John O’Neill is similarly convinced that his company will emerge stronger from tough times.

“It’s amazing six years on that we’re still here,” he jokes, going on to point out that Heatons is profitable.

He is encouraged by signs that things may just be improving. “I’m very optimistic for the first time in several years. We’ve seen consistent growth in the last four months,” he says.

He thinks Heatons is bucking the wider retail trend, however. It has benefited both from its value positioning and from being able to appeal to new types of customers.

Like Martin, he points to the impact that retailers such as Aldi and Lidl have had on the Irish market and believes the resulting changes are irrevocable.

“Aldi and Lidl have grown and it’s not a stigma any more to shop at value- for-money retailers,” he observes. “There’s a Lada next to a BMW in their car parks. The consumer is very resilient and applies that value attitude to a lot of things – there’s more socialising at home, the bars business has suffered dramatically. The customer spends more carefully.”

That increased focus on value has brought Heatons a new customer, a bargain-hungry but more traditionally upscale consumer, to add to the established customer base of mums aged between 20 and 50.

Heatons has Sports World stores as well as eponymous shops

Heatons has Sports World stores as well as eponymous shops

The retailer has attracted another new customer too – young men – as a result of its relationship with UK powerhouse Sports Direct, which has a 50% stake in Heatons.

Sports World shops have been opened by Heatons, frequently on an upper floor of an eponymous store. The partnership has worked well, says O’Neill. “We’ve had serious growth in our sports business in the last two years,” he says.

“We have been with [Sports Direct founder] Mike Ashley since he was Sports Soccer. The introduction came through a supplier. We saw the opportunity to do a joint thing because of the property costs in Ireland in particular. It’s been a very strong relationship.”

O’Neill, who has run Heatons since 1986 and led a buyout in 1995, thinks the business adapted speedily to the advent of the downturn and recession.

“We reacted fairly quickly, cut margins and made prices more attractive to the consumer,” he says. “We’re able to be fairly light on our feet. The major thing is being in the local market.”

O’Neill admits that for a while retailers in Ireland were probably not sufficiently alert to the magnitude of the changes that were unfolding. “You always thought that the next season would be better and it wasn’t – nor was the next,” he says.

“If you think the next season will be okay you buy to budget. It takes a while for your stock purchases to adjust. Retailers were playing poker with consumers for the first couple of years. Now everybody would be budgeting very sensibly.”

At Heatons, there was an intense focus on product, which O’Neill is sure has made a difference. “We tend to play it to the product. I think some retailers have characterised their customers too much,” he says.

Heatons develops and assesses product on its merits, putting to one side initially the distractions of packaging or presentation. “The retail business these days is all about product. Our focus is on merchandise from morning to night,” maintains O’Neill. “Some people get totally hung up on fit-out. You can’t forget what business we’re in, which is selling merchandise.

“The recession has driven that more. We’ve dropped ad spend and concentrated on having the right merchandise and deals in-store – word of mouth is a big thing in Ireland.”

O’Neill still sees opportunity to open more stores, including in Dublin where most of the population is concentrated, and is on the look-out for suitable locations with “easy access for mum”.

He may not move quickly though, because despite the ravages of the recession, he believes property firms have still not reacted sufficiently to take account of changed times.

“We’re not particularly fond of shopping centres because of overheads, particularly service charges,” he says. “Landlords haven’t got that bit. It’s a lot of dead money. There’s no incentive to keep service charges down.”

Many property developments are now in the hands of Ireland’s so-called ‘bad bank’ Nama, and O’Neill expects it will take years for the repercussions of Ireland’s property bubble to work through. He thinks there may be opportunities where existing sites need to be modernised and, if those opportunities turn up, “we may look at standalone sports stores”.

The retailer intends to launch a sports website in the next few months but, overall, says O’Neill, online is a very small part of Heatons’ business. There have been fears recently, flagged by Ireland’s Digital Hub Development Agency, that Irish shoppers might choose to spend online with UK retailers, potentially costing local players as much as E20bn (£16bn) a year in lost spend.

However, O’Neill downplays such speculation. “It’s been there for a while,” he points out. “The customer shopping on UK websites will continue to do so, but it won’t worry us because of our low tickets.” And O’Neill feels confident that Heatons, founded in 1946, has plenty to go for yet. “I believe the market has stabilised,” he says.

Dublin

Similarly, Mark Schwartz, chairman of famous Henry Street department store Arnotts, is cautiously optimistic. Since featuring in last year’s On the Road, various aspects of business have improved.

Arnotts chairman Mark Schwartz

Arnotts chairman Mark Schwartz

“It’s a little better than last year from a top line and cash flow perspective,” he says. “I’m counting on the second half to be better than the first. We’re increasing our market share.”

Last year, Schwartz was in the middle of refocusing the store around its core customer, code-named Sarah.

The approach is bearing fruit, he says. “Everyone thinks of Sarah – it’s consistent. It’s had an impact, from the look of the store to marketing.”

In-store the most recent development has been this month’s launch of the Shoe Garden – at 10,000 sq ft it’s the largest shoe boutique in Dublin. “There are lots of brands at different price points,” says Schwartz.

The focus on brands that people want to buy, and value, is being applied across the store on an ongoing basis, alongside improvements such as better eateries, adding to a sense of occasion.

Like others, Schwartz points to the extent of change to the shopper mindset. “It’s a new consumer,” he observes. “They’re buying not just essentials, but they’re focused on fashion and style in an intelligent way.

“People want value, they want to make sure what they’re buying is worth it – are they getting a really nice garment that fits well? That has helped Arnotts. We’ve got designer brands at a good price.”

And at landmark upscale department store business Brown Thomas, boss Stephen Sealey is happy with performance in tough circumstances.

“Against a very tough background I’m delighted our business is up,” he observes. For Sealey the big themes remain the same as when he spoke to Retail Week for last year’s feature. As he puts it: “You have to do new stuff, bring in new labels and keep it moving and exciting. That’s what we’ve done.”

There have been changes in store, including the extension of the children’s area and improvements to the home offer.

He says: “Women are buying fewer clothes, but their love affair with handbags shows no signs of waning. Following the theme of the success of accessories we’re opening a Céline boutique later this year.

“Maybe a bit counter-intuitively, the men’s business is doing well. In our case it’s because we’re taking business from competitors – in some cases independents are struggling to meet brands’ buying budgets.”

Now, as the countdown to the golden quarter gets nearer, Sealey is poised to bring another 23 brands into the shop for autumn as he strives to ensure continued freshness and appeal.

Sealey concludes: “I’d like to think the worst may be behind us but Ireland,  as a small, open economy, is vulnerable to what happens in Europe and the wider world.”

Until conditions improve, the legendary luck of the Irish may remain in restricted supply so far as the stores sector is concerned.

But while some have collapsed other Irish retailers are, if not thriving to the extent they did in the Celtic tiger years, more than surviving by making their own luck.

Profitero: The Ireland-based tech start-up making waves in retail

Ireland has for many years made an effort to attract technology companies to the country, and Google and Microsoft are among the big names with bases there.

It has also created an attractive environment for start-up firms including retail technology specialists such as Profitero, which collects data on pricing, promotions and availability and has worked for retailers including Tesco and Sonae.

Two of Profitero’s founders, chief executive Volodymyr Pigrukh and chief technology officer Dmitry Vysotski, worked with big tech firms in Ireland before setting up themselves with Kanstantsin Chernysh.

Chernysh owned several online stores and began compiling pricing data for his own use before realising that there was a much bigger enterprise to be built by supplying established companies with such information.

From left: Kanstantsin Chernysh, Volodymyr Pigrukh and Dmitry Vysotski

From left: Kanstantsin Chernysh, Volodymyr Pigrukh and Dmitry Vysotski

The company is now backed by investors including Seedcamp, Delta Capital, business development agency Enterprise Ireland and former Amazon director Simon Murdoch.

Pigrukh says Profitero is a digital equivalent of something that retailers have done for decades – an in-store audit of themselves and rivals.

“We do it online so we’re able to collect more data and update daily or hourly – it’s more useful, comprehensive and up to date so retailers can understand the situation in the market,” he says.

Although information is collected online, store information can still be gathered, and in some cases Profitero will monitor 100 shops.

Pigrukh says: “We see a big move on price standardisation across channels. Retailers call it omnichannel, they want the shopper to have the same experience across channels.”

He says that Ireland has proved an ideal place from which to build a business. “We could have relocated to London or Europe. We decided to stay and it paid very well,” he says.

“It’s very easy to register a company. The Irish tax office is very positive about start-ups. We received good help from Enterprise Ireland to test the idea and they co-invested.”

Profitero is poised to add more big-name retailers to its roster of customers and looks likely to be one of the emerging technology firms to become increasingly important in the retail industry.

Ireland’s property scene: a polarised market

The Irish property landscape is one of extremes following the bursting of the speculative bubble of the boom years.

At one end are top shopping locations such as the Grafton, Henry and Mary streets in Dublin. At the other are recently built or half-finished retail parks.

While the former are let at between 98% and 100% – albeit including short-term occupancies – there are five retail parks in the Republic that are entirely vacant, research by property firm Savills shows.

The best locations continue to attract interest, says Savills associate Simon Cooper. There will be a red-letter day next month when Ireland’s first Abercrombie & Fitch shop opens on Dublin’s College Green, following in the footsteps of sister fascia Hollister, which already has a presence.

Many retailers remain keen on Ireland, despite the trading conditions, says Cooper. They range from value retailers such as Dealz (Poundland’s Irish arm) and Eurogiant, to fashion specialists such as Superdry and Jack & Jones, through to Boots and Holland & Barrett.

Cooper acknowledges: “Outside the prime Dublin city centre and prime schemes it’s very difficult regionally.”

But that means “there’s an air of realism out there”, he maintains. “Landlords are having to fill voids. They’ve adjusted their parameters and are doing deals.”

Leisure has done well in Dublin – a view backed up by the packed tables at restaurants on the sunny day of Retail Week’s visit – and a branch of Jamie’s Italian will open soon.

Cooper says that the enduring appeal of established retailers in the city should maintain Dublin’s appeal even if online retail grows. “The city centre is much more of an overall experience – it’s more than logging on. Restaurants in general are performing well.”

While demand for space generally, and interest from new market entrants, may be down, Cooper says the change in conditions is creating opportunity. “The plus-side is it enables us to demonstrate value in the market,” he concludes.

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