Not another one. That was the general reaction this week when it emerged that the fashion retailer A|wear has entered interim examinership, buckling under the strain of the cost base attached to its 30 Irish stores.
Its holding company, Latzur, has followed a slew of other retailers, including Homebase and B&Q, on what has recently become a well-worn path to the High Court to get its rents written down.
A|wear, which sells mid-market ladies fashion aimed at 18-35 year olds, has been through the ringer – and four changes of ownership – in the last six years, as the economy rolled over a cliff. According to retail and fashion consultant Eddie Shanahan, A|wear lost something along the way.
“I’m not sure who A|wear’s customer is anymore, or what its brand stands for, although I used to. But the middle market where it operates is getting squeezed and A|wear needs to distinguish itself. The company needs to send a clear message about who they are,” said Shanahan.
It is no wonder the brand has lost some of its identity when you look at how often it has changed ownership.
The company was bought for €70 million in 2007 – the top of the market – from Brown Thomas in a management buyout backed by Alchemy Partners.
A|wear staggered through the recession, until the turnaround specialist Hilco Capital – which recently rescued HMV – bought it in November 2011 for a tiny fraction of its boomtime price tag. It quickly realised it had made a mistake.
"Hilco bought it in a rush because it thought the Government was going to act on upward-only rents," said David Fitzsimons, the chief executive of Retail Excellence Ireland. "In the cold light of day, it realised it wasn't going to work. Hilco specialises in distressed debt. But you don't get much more distressed than mid-market ladies fashion."
Just four months after it got the keys, Hilco flipped the business on to a consortium fronted by the Monaco-based businessman Michael Flacks. The consortium also included the Jesta group, an investment house owned by the Lebanese-Canadian Aintabi family. They reputedly paid less than €1 million for A|wear in February last year.
Flacks, who started his career selling leather jackets from the back of a van in the 1980s, is a colourful character. He set about trying to renegotiate A|wear’s rents, with some success. But it wasn’t enough.
His wife also became involved in the business, according to a source.
The partnership with Jesta didn't work out and Flacks left the business a year ago, he told The Irish Times.
“But I’m still on good terms with everybody,” he said.
Last month, Jesta quietly sold the business to Jack Stein, another Canadian businessman, although several members of the Aintabi family remain on the Latzur board.
Jesta’s website confirms that it “no longer retains any ownership” of A|wear.
It was Stein’s decision to place the business in examinership. As part of the court application, an independent accountant’s report was prepared by KPMG and filed with the High Court. It sets out in painstaking detail the scale of the woes that have befallen the business, and gives a flavour of the ambitious turnaround plan being formulated by Stein.
It confirms that A|wear employs almost 360 staff – 300 permanent and 60 temporary. It operates 30 stores in expensive high street locations in the Republic , one in the North, and nine recently opened concessions in Britain in a partnership with House of Fraser.
The business is 100 per cent owned by a British Virgin Islands company called Vangas, ultimately controlled by Stein. The statement of affairs shows that, at the end of August, Latzur had a hole in its balance sheet of €7.7 million. In a wind-up scenario, it has a deficit of €54 million.
About 87 per cent of A|wear's sales come from its retail operations. It also runs a wholesale business supplying other retailers from a warehouse in Naas, which contributes about 10 per cent of sales. Its fully transactional website contributes less than 4 per cent of sales. The website and the wholesale business are central to its turnaround plan.
Since the end of January, year-on-year sales are down by 5 per cent to around €16.2 million. The company made losses last year of €5.3 million, forecast to drop this year to €2.3 million after a cost-cutting programme. A|wear owes €6.1 million to Chelsey, another Aintabi entity, which retains a fixed charge on all its assets. It also owes under €1 million to another Jesta group company.
During the summer, A|wear was also unable to pay its VAT bill to Revenue, and has been on a payment plan in recent months. It still owes the tax authorities €752,000 and has separately been threatened with several winding up petitions by others in recent weeks.
As well as its expensive leases, Latzur has blamed suffocating credit terms from its suppliers for driving it back into insolvency. After its 2011 and 2012 receiverships, the company has operated on “restricted credit terms”, and has been forced to place higher minimum stock orders by its suppliers.
This has resulted, Latzur says, in high quantities of leftover stock. This stock must then be heavily marked own in order to shift it, further eroding profitability. Latzur complains that its high cost base has prevented it from being able to compete at the more affordable end of the market where its core target of 18-35-year-old young women traditionally shop.
The rescue plan revolves around cutting rents and closing up to 10 stores, as well as ending its concessions relationship in Britain with House of Fraser.
The accountant’s report mentions retaining 19 stores, although management believe that even more than that could be saved if landlords co-operate.
A|wear will source more affordable stock from locations such as China, India and Turkey. Until now, most of its stock was sourced in the UK. The company wants to cut its average selling price by 21 per cent. A recent trial in one of its departments, where it cut prices on that scale, resulted in a 61 per cent increase in sales.
With its new-found cheaper supply line, A|wear also wants to ramp up its wholesaling operation, selling clothes to other retailers.
It reckons it could boost the division’s revenues by 35 per cent next year and 20 per cent the year after. It says it is already in negotiations with potential customers, but has been unable to exploit the opportunity due to a lack of cash. The company has no overdraft, and enters examinership with free cash of just €3,000.
Latzur was unavailable for comment last week. Understandably, the company wants to do all its talking in the High Court while the examinership process is ongoing.
Ken Fennell of Kavanagh Fennell accountants was appointed interim examiner on Tuesday. It is expected to be confirmed by the High Court later this month, after the judge said there were "strong reasons" for the interim appointment.
Flacks, however, has no such compunction about talking. Despite leaving A|wear a year ago, he says he might look at buying it out of examinership himself, potentially putting him at odds with Stein’s rescue plan.
“I might look at buying it back. It’s got a great name; it’s just the rents that are the trouble. If there’s a deal to be done, I’ll take a look,” Flacks said.
He hasn’t gone away, you know.
Rise and Fall
Opens as Gaywear in Limerick
Galen Weston, the owner of Brown Thomas, buys into the business
Brown Thomas sells it to management, backed by Alchemy Partners, for €70m
Business is bought by UK turnaround firm Hilco Capital, led by Irishman Paul McGowan
Hilco sells it to a consortium led by Michael Flacks and the Jesta Group
Flacks leaves the business
Jesta sell A-Wear to Jack Stein, of Jay See Associates
The business enters interim examinership