Clerys never bargained for such a downturn
BACKGROUND:The economic downturn hit the retail sector especially hard, but the problems at Clerys were deep-rooted
THE NEWS that Clerys has slipped from the control of the Guiney family has been met with a sense of sadness rather than surprise.
Rumours about the financial state of Clerys – an intensely private, family-owned company – have abounded over the last few years. Latest accounts for Clerys plc show it lost €2 million in the year to the end of January 2011, while turnover fell 15 per cent to €21.9 million in the period.
The inability to service a hefty €26 million in debt owed to Bank of Ireland – accumulated over the last few years as Clerys acquired neighbouring buildings in the O’Connell Street area and invested in its main store – appears to have been the tipping point for the company.
The sale of the business to US private equity group Gordon Brothers and the resulting closure of Guineys and outlets of Clerys in Naas and Leopardstown follow months of speculation about the group’s future. But it’s not the first time the company has been a takeover target.
Clerys rejected two management buy-out offers in 1998 and 1999. Both approaches were led by Tom Rea, who was general manager of the business at the time of the initial proposal in December 1998.
The first approach valued the business at £19 million (€24.1m). The second, in June 1999, valued it at £22-£25 million (€27.9-€31.7m), both reflecting the strong value held by the retailer at that time.
The death in 2004 of Clerys long-time chairwoman Mary Guiney at the age of 103 led to considerable speculation about a change of ownership, and a number of interested parties were reported to have run the rule over the company in 2006. Whether a sale at that point – just as Ireland was approaching the height of its economic boom – would have secured a different outcome for Clerys is anybody’s guess, but from this point on the department store began to lose its way.
The reasons are not difficult to surmise. The economic downturn had a detrimental effect on consumer demand, with the retail sector especially hard hit. But the problems at Clerys were more deep-rooted. Retail experts talk of its failure to respond to changing trends, and its association with an older clientele. Although it invested in its O’Connell street store, introducing concession offerings aimed at younger shoppers, its level of investment never matched the ambition of rival department stores Arnotts and Brown Thomas.
It also suffered from the identity crisis besetting department stores generally. Faced with the growing popularity of the suburban shopping centre, the department store’s one-stop-shop model, offering a range of items under one roof, no longer seemed so unique. As Mary Lambkin, professor of marketing at the UCD Smurfit business school, points out, difficulties at Clerys are symptomatic of an international trend. “Department stores around the world are performing badly. Even big names like Macy’s, Bloomingdales, have had to adapt as the department store competes with shopping centres. The old-fashioned department store that sold everything from needle to anchor is dying out. What we’ve seen is that department stores have been exiting the low-margin parts of the business, such as haberdashery, furniture, and have, in fact, become speciality stores.”
Faced with this long-term trend department stores such as Clerys found themselves caught in a short-term cycle, she explains. “As department stores lost business to the new, high-spec shopping centres, they did not have the money to reinvest in their stores, and began to lose more of their clientele who wanted a different shopping environment.”