Government can learn from pressured firms’ practical ways

If you can't beat 'em, join 'em would seem to be the decision reached by Irish entrepreneur Derek Hughes as he throws his lot in with his arch rival Eason & Co.

Hughes will operate three franchise stores for Eason in the St Stephen’s Green Shopping Centre, Swords and Ennis.

“Becoming an Eason franchise makes sense for our business, given the decline in the overall book market and the threat from online. The Eason multi category business offers a more robust commercial model in addition to a very strong brand and business organisation,” Hughes said about the decision to join forces with Eason.

For the best part of a quarter of a century, Hughes & Hughes sold books in opposition to Eason. Hughes prided himself on the fact that its offering was a little different to its bigger rival.

He has now accepted that the independent business model he has pursued since 1986 is no longer viable.

Retail sales have taken a battering in the recession while traditional book sellers have been undermined by supermarkets and online operators such as Amazon.

It is estimated that book sales in Ireland last year totalled about €130 million. Of this, €123 million related to “physical” books and €7 million to e-books.

The sale of physical books declined by about 7 per cent last year and have been in retreat for the past six years.

If you include schoolbooks, the total market is about €200 million and is down about one-third since its peak.

Hughes & Hughes was once one of the biggest booksellers in the country, with a large chain of shops, including airport outlets in Dublin, Cork, London City and Heathrow.

The expansion was debt-fuelled, with Hughes & Hughes borrowing €9 million from Ulster Bank.

A failure to renegotiate its rent with the Dublin Airport Authority triggered receivership in early 2010. Ironically, Eason snaffled the airport shops and Hughes & Hughes branches in Dún Laoghaire and Galway.

With the backing of Aidan Masterson and Pierce Molony, owners of the Bus Stop newsagents, Hughes bought back the name later that year and reopened six shops. Once again, he found the going tough. Its stores in Dundrum and Dundalk have closed and he’s now decided to go the franchise route with Eason.

Huddling together for warmth in the current economic climate is not a new phenomenon. There are now numerous alliances across the economy that would have been unimaginable before the crash.

The printing contract for The Irish Examiner daily newspaper and its sister titles, which are now owned by Landmark Media Investments, was recently transferred to The Irish Times plant in Citywest. When Danske Bank closed its branch network in recent times, it signed an agreement with An Post to do cash and cheque transactions on its behalf at post offices around the country. AIB has a similar deal in place.

Aer Arann operates franchise services on behalf of Aer Lingus, which itself signed a similar deal with Virgin Atlantic for certain domestic UK routes out of Heathrow.

Independent grocery retailers have engaged in common buying schemes for many years to generate savings from bulk purchasing.

Beer companies have long brewed for each other in various markets in spite of competing fiercely to win over drinkers. In Ireland, Diageo’s Guinness brewery produces Budweiser and Carlsberg for this market under licence.

These are practical arrangements designed to drive efficiencies and achieve cost savings while also recognising the fact that there is little point in replicating certain processes, especially in a small country such as Ireland.

Is there a lesson to be learned in this by the Government?

Take as an example the use of cash across Government departments, State agencies and local authorities. These balances are managed independently of each other. Imagine the savings that could be achieved by having one central pool of cash that the various arms of the State would draw upon as required. It could free up cash resources, reduce administration and ensure the State received the best interest rate for any money on deposit.

Today, the Central Bank will launch its National Payments Plan. The aim is to increase the use of electronic banking and reduce the reliance on paper within the system. It makes sense and will yield millions of euro in savings.

Embracing change is never easy. Derek Hughes told me yesterday he “had to park the emotional bit and concentrate on the commercial” when making the decision to partner with Eason.

If Ireland is to break out of the economic malaise, more radical change will be required across the economy, particularly in the public sector. It won’t be easy but it must happen.