Game on for Smyths toys family after €79m European deal

Caveat: Transformation to pan-European market leader will not be child’s play

The aggression the Smyths brothers showed in the chain’s UK expansion indicates they are unlikely to be overawed at the prospect of being catapulted into the heart of the European market.  Photograph: Frank Miller

The aggression the Smyths brothers showed in the chain’s UK expansion indicates they are unlikely to be overawed at the prospect of being catapulted into the heart of the European market. Photograph: Frank Miller

 

It’s a long way from Claremorris to Cologne. But we shouldn’t have to wait too long to find out how the Smyth toy-retailing family intends bridging it.

The €79 million agreement Smyths reached last week to buy the 93-strong central European division of bankrupt Toys R Us – headquartered in the German city – is a transformational deal for the unlimited Irish company, run by the extremely private Smyth family from the Mayo town.

At a stroke, the proposed deal puts Smyths among the largest speciality toy retail chains in Europe, with about 200 stores across Ireland, Britain and, as soon as last week’s deal gets over the line, Germany, Austria and Switzerland.

A US bankruptcy judge must yet approve the transaction.

But transformation isn’t automatically a uniformly positive thing. Such a deal also comes with obvious operational risks for an Irish family-owned business. The Smyths may be in the toy business, but the sector is far from child’s play, as the $5 billion US bankruptcy of one-time global giant Toys R Us proves.

How will the Smyths handle the change from privately-held, modestly-sized, publicity-averse regional player to pan-European market leader?

The Smyths move is among the most eye-catching by an Irish retailing dynasty. The Dunne and Musgrave grocery families have both – to date – built larger empires than the Smyths. But both did it mostly on their home patch.

Dunnes Stores and Musgrave both had tilts at the British market. But in recent years, both have more or less exited their operations across the Irish Sea. The Smyths, meanwhile, effectively have scaled the summit of the British speciality toy retail market, opening more than 80 large-format stores in little over a decade, flooring their rivals.

Dunnes Stores and Musgrave also both have operations in Spain, where Musgrave owns the small-but-growing Dialprix chain and Dunnes owns five department stores in Andalucia. But those operations are small bets for the two families concerned.

Management test

The Smyths, meanwhile, are taking a major punt on the European market, where more than 40 per cent of the group’s network will now be located. This will test the efficiency of its volume-driven operating model. But, more crucially, it will also test the management capabilities of the Smyth family members.

The chain is owned by four brothers who all sit on its board – Tony, Pádraig, Liam and Tom. Tony, an accountant, is the commercial brains behind the group and the driving force behind its expansion. Pádraig is the toy buyer who maintains Smyths’ relations with the big manufacturers. Liam runs the Claremorris store where it all started. Tom, meanwhile, is a Galway publican who has also invested in the renewable energy market. Day-to-day, the chain is run by Tony and Pádraig.

The aggression the Smyths showed in their wildly successful UK expansion indicates that the family is unlikely to be overawed at the prospect of being catapulted into the heart of the European market. But how they structure the group, and how much operational control they are willing to cede to outsiders, will be crucial.

The Musgrave family realised years ago that it was too large to be run like a family business. It is now effectively structured like a small PLC, with British-born retailing executive Chris Martin at the helm. Dunnes is in the middle of a transition of power from its matriarch Margaret Heffernan, who has ably steered the ship through force of personality and sheer bloody-mindedness since taking over from her brother Ben Dunne.

One interesting things to note about the Smyths group is that its non-family officer class all appear to be relatively young. Most senior executives are aged in their early-to-mid 30s, or up to 40 at most. Youth brings dynamism.

The German-headquartered Toys R Us business comes replete with its own management team, which has become accustomed to operating under the banner of a global corporate giant. The Smyths must move quickly to integrate that management team into their family-owned group.

But they must also send over to Germany some of their own executives if the intention is to rebrand all of the European stores to Smyths. This will stretch the head office.

Tony Smyth indicated last Saturday that the business is planning further European expansion. The group has since rowed back from that somewhat this week and said it is immediately focused on integrating its new acquisition.

A sale process remains ongoing for the 50-strong Toys R Us division in France, which Smyths has surely looked at. Buying that too would truly make the Smyths from Mayo a European force. They might never get such an opportunity again.

But the trickier French market, where even large domestic players such as La Grande Récré are feeling the pinch, might also be a risk too far for the Irish company.

FOOTNOTES

The battle in Ireland between Bulmers/Magners owner C&C and Heineken, which this week launched its second Irish cider brand, Appleman, is turning into a real orchard fight.

Dutch brewer Heineken surprised C&C, the king of the Irish market, in 2015 by launching Orchard Thieves to steal into the lucrative on-trade market. Since then, the Heineken-owned brand has hurt its incumbent rival. Bulmers volumes were down 6 per cent last year.

In response, C&C renosed Bulmers’s brand image in Ireland. Out went the focus on heritage and culture and “nothing added but time”. In came a push for younger drinkers, with television ads featuring house parties with an edgier, sexier theme.

In response, Appleman now appears to be making a play for the heritage-loving drinkers previously targeted by Bulmers. It promises “simplicity” and a return to “nature” with “the perfect balance of good friends, great conversation and great-tasting cider”. That is straight from the old Bulmers playbook.

They’re a flinty lot at C&C’s Dublin headquarters, however. There is sure to be a response.

Years ago, in its field-drinking flagons guise, cider had a reputation as a fuel for fights. Watching Heineken and C&C squaring up to each other now, one might wonder what has changed.

FitzPatrick breezes through Four Courts

If Seán FitzPatrick, the former chairman of Anglo Irish Bank, is bruised by his public downfall, he is intent on not showing it. At the Four Courts on Tuesday, where his wife was stating a claim in his bankruptcy proceedings, he breezed through the restaurant in as if he hadn’t a care in the word.

As gregarious and confident as ever, he enthusiastically shook hands with members of the media, cracking jokes and radiating his old charm.

The history books won’t be kind to FitzPatrick when assessing his role in Ireland’s painful banking collapse. But life must still be lived.

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