What happened at Clerys

CatFromHue

Did anyone watch the documentary on Clerys on Monday night?

It's left me a bit puzzled I have to say.

Broadsheet have a breakdown of what happened
http://www.broadsheet.ie/2016/01/05/how-they-killed-clerys/

A quick synopsis is

in 2012, the owners of Clerys, Gordon Brothers, split Clerys into two companies – a trading company, OCS Operations, and a property company, OCS Properties.

OCS Operations paid rent under a lease to OCS Properties for the use of the building. Within two and a half years, OCS Operations, which employed the staff and managed the department store, made a loss of €4.3million.

Meanwhile, OCS Properties – which has no staff – made a profit of €6.5million.

Natrium bought the entire structure of Clerys, so they bought the parent company and that gave them the property company and the trading company and then we know that immediately, immediately upon doing that, they sold the business that was your employer, the trading company, for €1 to Jim Brydie who was an insolvency specialist

Mr Brydie – a former director of Anglo Irish Bank in the UK – wrote to Natrium asking it to extend his lease but they wrote back immediately saying they’d send a formal notice to quit if he didn’t get out of the building.

Was the trading company set up to fail from the start and are there not legal issues in doing this?

pedroeibar1

Why be puzzled by the whiney program on ancient news? It’s not complicated.

Clerys was a dog, losing money for years. The Tacky state of O’Connell St and scary people did not help, nor did Dublin’s traffic plans and dodgy places to park north of the river. Nor did an aging stuck in a rut staff /management help it much. Newco sees an opportunity and wants to protect its investment, so assets and a liability are transferred into property holding co and a trading co. The trading arm pays market rent, pays its staff union rates (and above), pays the PRSI , continues to contribute to the economy and continues to lose its shirt, so the plug is pulled and lease reverts to the landlord. Perfectly legal as there was no unfair preference and the plug was pulled long after the restructuring. Why should investors continue to support a dog? Why the constant reference to the guy from Anglo? (He joined them in mid 2007 long after the damage was done. But I suppose it is nice to drag in the big bad monster.) Lots of companies have failed having trousered staff’s PRSI contributions and more. That did not happen in this case.

For decades Clerys business was controlled by a very elderly lady who worked on it part-time and had fixed ideas on her fiefdom. The staff ran it their way, had notions of their own importance, they too had fixed ideas and did not move with the times. Is it a proud boast to say you worked in the same job for 40 years? Change? Oh no, we don’t do change here.
Go back to the 1960’s. Clery’s biggest competitor was a very similar operation called Todd Burns. The latter failed and was bought by a young guy with help from daddy. He poached the best managers from Dunnes Stores and they changed profile / image and recruited young managers, gave them power and reward and drove them very very hard. That business became Penneys. That’s the difference.

Yes it is sad an old business closed, but hey, that’s life. S#1t happens, particularly when a company cannot act fast enough and foster change. Comparisons can be made with Waterford Glass.

CatFromHue

No I've no problem with an old business failing, that's not confusing at all. I'm from Dublin but have only been to Clerys twice I'd say and I don't go into town to do clothes shopping either. It's the splitting of the company and how it was done that is puzzling.

The program didn't go into full detail of where the rent money that the property company received came from but I'd imagine the trading company made up a fair chunk of the rent.

Did Clerys pay rent before the split? I'm not so sure as they would have owned the building.

So it looks like the trading company was doomed to fail from its inception, which seems a bit strange and has me wondering the legality of it all.

Subcomandante Marcos

CatFromHue wrote: »

Did Clerys pay rent before the split? I'm not so sure as they would have owned the building.

No, the building was owned by the company.

Basically the company who bought the business wanted to close the store as they could make much more money, quicker, by flipping the property.

To justify doing this they essentially charged themselves insane rental rates so it looked like the store wasn't viable an they could say "sure look, we tried and it didn't work". The fact the store only lose 4 million per year even though they were paying themselves massive rent is pretty bloody impressive to be honest, put that 6 million rent back in and you have a 2 million per year profit.

Stuff like this happens all the time.

Graham

Subcomandante Marcos wrote: »

To justify doing this they essentially charged themselves insane rental rates so it looked like the store wasn't viable an they could say "sure look, we tried and it didn't work".

Do you know what rent were they paying for the store and how that compared to similar properties in/around Dublin?

pedronomix

Clerys was a busted flush. Yanks come in, invest in the terminally ill business, ring fence as much of their investment as they could (good business).. Despite revamp and some remodelling of the business, it fails to make money. They cut and run. All this talk of inflated rent is pure conjecture, to be able to say this you would need independently verified commercial rent valuation and the details of the rent being paid, no such info is in the public domain. It is also unclear as to what loss the investors suffered on their to tal investment in the two companies.

The end result would have been the same if two separate entities had bought the buildings and the trade. On the upside the employees got several more years employment that helped bridge the job gap over rec1ent years.

Very poorly made programme, but pretty much in line with the desires/methodologies of RTE and it's lefty cohort of inmates.

ZeroThreat

pedroeibar1 wrote: »

Why be puzzled by the whiney program on ancient news? It’s not complicated.

Clerys was a dog, losing money for years. The Tacky state of O’Connell St and scary people did not help, nor did Dublin’s traffic plans and dodgy places to park north of the river. Nor did an aging stuck in a rut staff /management help it much. Newco sees an opportunity and wants to protect its investment, so assets and a liability are transferred into property holding co and a trading co. The trading arm pays market rent, pays its staff union rates (and above), pays the PRSI , continues to contribute to the economy and continues to lose its shirt, so the plug is pulled and lease reverts to the landlord. Perfectly legal as there was no unfair preference and the plug was pulled long after the restructuring. Why should investors continue to support a dog? Why the constant reference to the guy from Anglo? (He joined them in mid 2007 long after the damage was done. But I suppose it is nice to drag in the big bad monster.) Lots of companies have failed having trousered staff’s PRSI contributions and more. That did not happen in this case.

For decades Clerys business was controlled by a very elderly lady who worked on it part-time and had fixed ideas on her fiefdom. The staff ran it their way, had notions of their own importance, they too had fixed ideas and did not move with the times. Is it a proud boast to say you worked in the same job for 40 years? Change? Oh no, we don’t do change here.
Go back to the 1960’s. Clery’s biggest competitor was a very similar operation called Todd Burns. The latter failed and was bought by a young guy with help from daddy. He poached the best managers from Dunnes Stores and they changed profile / image and recruited young managers, gave them power and reward and drove them very very hard. That business became Penneys. That’s the difference.

Yes it is sad an old business closed, but hey, that’s life. S#1t happens, particularly when a company cannot act fast enough and foster change. Comparisons can be made with Waterford Glass.

I tend to agree with most of the above. The staff featured on the programme struck me as something from a bygone era such as you would have seen on reruns of 'Are you being served?'

pedroeibar1

Subcomandante Marcos wrote: »

No, the building was owned by the company.

Basically the company who bought the business wanted to close the store as they could make much more money, quicker, by flipping the property.

To justify doing this they essentially charged themselves insane rental rates so it looked like the store wasn't viable an they could say "sure look, we tried and it didn't work". The fact the store only lose 4 million per year even though they were paying themselves massive rent is pretty bloody impressive to be honest, put that 6 million rent back in and you have a 2 million per year profit.

Stuff like this happens all the time.

Strange claims there. What is your basis for saying insane rents were charged? It had to be market rent – otherwise it would be possible for anyone, including the State, to legally challenge what was done by Newco. Own the building, don't charge a commercial rent and the trading profitability figures and those for ROCE for property holding co are skewed.

It’s years since I looked Clerys’ financials but I recall that they were one of the very few businesses losing money during the Celtic Tiger years and yet were still paying dividends to the shareholders. From memory their annual turnover was fairly static at €30 million-ish with losses fluctuating 100k to 1 mill. on that. This was at a time when other retailers were coining it and growing exponentially (while locking themselves into the nightmare of upward only rent reviews in new leasesed premises!). Clerys perennially had a major whine, blamed everything and everyone, ESB, Rates, DCC, roadworks in O’Connell St and even LUAS works, despite Henry St having a boom at the same time. Clerys did move to Blanch and Sandyford and – shock horror - opened Sundays out there which apparently was what made the group profitable periodically but I never saw the figures split out.

During the Tiger retail underwent huge change due to property plays – how many suburban petrol stations and garden centres were turned into residential developments? What happened to Superquinn? Look at the Europa Garage site in Blackrock? Or why Roches decided it was not worth the candle and got out (very nicely too!).

I always feel sympathy for staff that are badly led but sometimes they bring about their own downfall through their own or union intransigence. The people I do feel sorry for at Clerys are the concessionaires, people who, by developing their outlets actually paid to keep Clerys going long after its sell-by date. Those retailers had businesses that were viable and who paid their concessionaire fees but soon, through no fault of their own, lost the roof from over their heads. I wish them the best for the future.

pedroeibar1

CatFromHue wrote: »

I'm from Dublin but have only been to Clerys twice I'd say and I don't go into town to do clothes shopping either. .

As to why businesses fail, there is your answer Cat.:)

road_high

Lovely people featured in the programme but it came across as if making money as a business was the last thing on their minds...store seemed like a big social work place where people came to be part of a family rather than a cutting edge retailer.
I find it incredible that no one there saw this coming?
Whole thing reminded me of "Are you being served", not difficult to see where the inspiration for various characters would have come!!

road_high

pedroeibar1 wrote: »

Comparisons can be made with Waterford Glass.

Quite similar. Out of date product, intransigent workforce that thought the company existed to keep them in jobs rather than make a profit.

CatFromHue

pedroeibar1 wrote: »

As to why businesses fail, there is your answer Cat.:)

Did the company fail because of that or that it's owners, through an accounting method, took a rake of money out of the business? This is what I mean when I said was it (the trading company) set up to fail which is what has me puzzled and why I started the thread. If they hadn't of split the company it could be argued that they'd have been up 2 million instead of one half of the company being up 6 million and the other half down 4. I know that's a very simple breakdown but they're the numbers from the show.

On the show the insolvency expert put it that what they did was very clever. What he really means is they figured out a way to take all the income, not fully sure if you can call it profit, and shaft alot of people while me and you take up the slack for them.

It does seem that they spilt the company and then charged the section that traded, and could bring in money, a fee to use the premises it's used for years and years so that they could rake it in without having to deal with any employee issues/costs.

pedronomix

Cat, you are missing the whole point here. Clerys was a failed entity when these guys came on board and they wisely protected as much of their investment as possible while they also invested in trying to change the business model in to a viable one. They failed to make a go of it and departed, end of. The dirt done on the concession-holders, by the operating company is a whole different ballgame as pointed out by the other Pedro. The employees were better off in that they had a few more years of income under the new owners rather than being made redundant at the time of the sale in a liquidation scenario. Did you actually read all the post above?

Far too much Joe Duffy style "de poo-wer peeple" surround this whole closure.

CatFromHue

I've read the posts and understand the situation Clerys were in before Gordon Brothers but that's doesn't give them free right to do whatever they want.

It also looks like they didn't just protect their investment either, it looks like they made alot of money in what they did.

You can say there's far too much Joe Duffy about the closure but what happened stinks, but you admit they shafted alot of people.

Gloomtastic!

CatFromHue wrote: »

I've read the posts and understand the situation Clerys were in before Gordon Brothers but that's doesn't give them free right to do whatever they want.

It also looks like they didn't just protect their investment either, it looks like they made alot of money in what they did.

You can say there's far too much Joe Duffy about the closure but what happened stinks, I mean even you admit they shafted alot of people.

It was their money, they took the risk. They could do whatever they wanted.

You could have bought it and run it for the benefit of the employees until your money ran out. Then what would you have done?

pedronomix

CatFromHue wrote: »

I've read the posts and understand the situation Clerys were in before Gordon Brothers but that's doesn't give them free right to do whatever they want.

It also looks like they didn't just protect their investment either, it looks like they made alot of money in what they did.

You can say there's far too much Joe Duffy about the closure but what happened stinks, but you admit they shafted alot of people.

Do you know how much they invested/spent on the refurb of the store? How much capital did they invest/lose in the trading co? Taking rubbish journo headline grabbing incomplete figures /maths does not make them facts or financially correct.

i am not defending them or all of tgheir actions, I am looking at the whole proposition from a business perspective. They structured it in a sound fashion, my money is on that it was a poor overall experience that they regret.

CatFromHue

Gloomtastic! wrote: »

It was their money, they took the risk. They could do whatever they wanted.

You could have bought it and run it for the benefit of the employees until your money ran out. Then what would you have done?

I've no wish for the company to be run for the benefit of the employees, I do wish though that they and the concession people weren't treated so badly.

pedronomix wrote: »

Do you know how much they invested/spent on the refurb of the store? How much capital did they invest/lose in the trading co? Taking rubbish journo headline grabbing incomplete figures /maths does not make them facts or financially correct.

i am not defending them or all of tgheir actions, I am looking at the whole proposition from a business perspective. They structured it in a sound fashion, my money is on that it was a poor overall experience that they regret.

My understanding is that the previous owners did a refurb before Gordon Brothers bought it.

It's true I don't know the ins and outs of the business but it appears they split the company not too long after they acquired it. From that moment on they charged the trading company rent and it looks like they scuppered it with the plan to make their money by selling the building.

I think this article articulates my grievances better than I can
http://www.smurfitschool.ie/aboutsmurfit/news/title,240672,en.html

Shedite27

I guess the question really is whether the guys that bought it, bought it with the intention of using the laws to make a profit out of closing it down.

If so, it stinks, they shouldn't have been able to say "the building is completely separate to the company, so the building can't be used to pay the debts of the company"

Shedite27

And yes, I totally agree that the company was not fit for the current market so should have been wound up.

My question is whether the lads that bought it ever intended to make a go at it.

RainyDay

CatFromHue wrote: »

I've no wish for the company to be run for the benefit of the employees

Why not? John Lewis/Waitrose is employee owned, and one of the most successful retailers in the UK. Publix in Florida and Mondragon in Spain are employee owned and both have strong track records.

pedronomix

http://www.smurfitschool.ie/aboutsmu...240672,en.html Poorly written piece as it ignores the actual circumstances that obtained in the Clery company at the time of the Gordon acquisition. Other companies in the Clery group were closed and liquidated at this time in 2012, all the staff got statutory payments. It also seems to suggest that the company was split in two just prior to the sale to Natrium, this was done at the outset. Much of the rest of the piece is simply personal opinion and lumps two seperate legal entities as having joint corporate governace obligations, which is nonesense.
Buying such property in Dublin in 2012 was a real gamble and the gross apparent return would be faily typical of a 2012/2015 buy/sell that those who played that game generally have realised. Vulutures feed off the weak and dead.

pedroeibar1

CatFromHue wrote: »

I've no wish for the company to be run for the benefit of the employees, I do wish though that they and the concession people weren't treated so badly.

Yes, but that has been agreed by most, including myself.

CatFromHue wrote: »

My understanding is that the previous owners did a refurb before Gordon Brothers bought it.

Yes, but it was not making a profit and had no reasonable proof of an expectation of profit.

CatFromHue wrote: »

I think this article articulates my grievances better than I can
http://www.smurfitschool.ie/aboutsmurfit/news/title,240672,en.html

Business is about making a profit, which also includes preventing losses, and the profit is measured as the ROCE (return on capital employed). When someone makes a profit after risking millions why should people whine?

Start or buy a business and you structure it the best way to protect and maximise your investment, be it through security, ring-fencing assets, or taking advantage of tax structures.

Clerys’ store is a huge prime location unit on the city’s main street – it has a value both as a capital asset and as a revenue stream generator. Under the old regime Clerys had no profits (and mainly losses for several years) so the total investment was a failure. Owning the building meant that a landlord did not have to be paid rent, which was a huge subsidy to the business. The asset value was eroding due to mounting losses. The old regime at Clerys was screwing the concessionaires long before they sold it - look at the manner in which the sales at the concessions had to be handled.

If the Clerys’ employees were so much in love with the business they could have bought it themselves – that happens, ask the Aer Lingus pilots whose pension scheme bought a very large chunk of AL shares to block Ryanair. There are MBOs regularly in Ireland, the Clerys people could have done one.

Gordon Bros bought Clerys, flipped it to Nastrium who structured the new business into two units, one the property, the other the trading arm. That is perfectly legal, normal and happens regularly in all industries/sectors. The trading arm was losing money, could not afford a commercial rent, so the plug was pulled there and then, rather than trade for months at a loss and lose lots of money.. Had Nastrium proposed/charged an excessive rent (as claimed by some above) it would have been jumped on post liquidation. Not only is there a Director of Corporate Enforcement, who by law must get a report from the liquidator on the running of the company and must comment on its management, on liquidation there also is a Committee of Inspection, on which the representatives of the creditors have the majority.

Prof Niamh Brennan (aka Mrs. Michael McDowell) is known to speak her mind and is a force in corporate governance (Smurfit Bus School , IOD, etc). There are very strict laws as to what can and cannot be done and since the new Companies Act any breaches of fiduciary carry heavy sanctions. The piece by her that you referenced is representative of her general views on corporate governance (and those of many others) but they are aspirational and reflect a type of ‘benevolent capitalism’ that certainly does not exist in the US but is creeping in here in the EU. That is not covered by the law in which, despite the new Companies Act, there are considerable grey areas such as for example, the duty of care to all stakeholders (extending to the company/shareholders/suppliers/employees) . Similarly all directors by law are equally responsible for the running of a company, but there is a growing consensus (in legal circles) that non-executive directors do not carry the same onus of responsibility. That no doubt is supported by Prof Brennan because as a director of Ulster Bank during the Tiger she was one who sanctioned at board level several stupid loan decisions (Ulster were main bankers to Sean Dunne – look at what he borrowed for the Jury’s site for e.g., a location that had no planning permission, required a doubling (or more?) of the Ireland’s permitted building height and which required the sale of a few hundred apartments at prices in excess of €1 million before it could break even!) She also is an accountant, and I have yet to read what she has done on calling to account her professional colleagues on signing off on audits, etc. (Anglo, the DDA, and Irish Life & Perm. to name just a few.) It’s very easy for an academic to throw stones!

Yes it is sad that lots of people lost their jobs in Clerys, but new jobs will be created when the new development is completed, probably better ones and more in keeping with central Dublin. Job losses happen in all industries. It was a much bigger event when Dell pulled out of Limerick, or Digital closed in Galway. But what was the alternative? Keep Clerys going a la Irish Fertilizer Industries or Irish Steel at a huge cost to the taxpayer with government money being poured into it? What would you have done with Clerys?

pedronomix

RainyDay wrote: »

Why not? John Lewis/Waitrose is employee owned, and one of the most successful retailers in the UK. Publix in Florida and Mondragon in Spain are employee owned and both have strong track records.

In these cases the owners and the employess are the same. That any normal commercial structure would be run for the benefit of the employees is plain daft idealism.

CatFromHue

CatFromHue wrote: »

Did the company fail because of that or that it's owners, through an accounting method, took a rake of money out of the business? This is what I mean when I said was it (the trading company) set up to fail which is what has me puzzled and why I started the thread. If they hadn't of split the company it could be argued that they'd have been up 2 million instead of one half of the company being up 6 million and the other half down 4. I know that's a very simple breakdown but they're the numbers from the show.

They didn't set it up to fail - they set it up to compete on the same terms as a concession holder or a rival renting across the road.

It is a common practice to charge overheads like rent to different parts of a business to see which parts are subsidizing others.
Separating the company formally wouldn't be as common but was sensible for the new owners in this case.

Your simplified version is that if the shop didn't have to pay rent it would be profitable - why would the owners be happy with a smaller profit if the building could earn a higher rent?

pedroeibar1

RainyDay wrote: »

Why not? John Lewis/Waitrose is employee owned, and one of the most successful retailers in the UK. Publix in Florida and Mondragon in Spain are employee owned and both have strong track records.

John Lewis has a huge and very successful on-line presence. Anyone here ever buy something online from Clerys?;)
Waitrose too is moderately successful, but it is well positioned and while not trading anywhere near as well as Lewis, it seems not to be taking advantage of the woes of Tesco. No big success there.
Mondragon is successful but has a very tiered system to the extent that in many locations non-owner staff outnumber owners. Research their little trouble issues with FAGOR.

Conveniently you failed to mention the Co-Op, the biggest, but then that too was a dog and was on the brink for how long before being rescued? Its recent increase in profitability is due to its Funeral business (ominous!).

RainyDay

pedroeibar1 wrote: »

John Lewis has a huge and very successful on-line presence. Anyone here ever buy something online from Clerys?;)
Waitrose too is moderately successful, but it is well positioned and while not trading anywhere near as well as Lewis, it seems not to be taking advantage of the woes of Tesco. No big success there.
Mondragon is successful but has a very tiered system to the extent that in many locations non-owner staff outnumber owners. Research their little trouble issues with FAGOR.

Conveniently you failed to mention the Co-Op, the biggest, but then that too was a dog and was on the brink for how long before being rescued? Its recent increase in profitability is due to its Funeral business (ominous!).

Employee ownership is not a panacea or a guarantee. I was just pointing out that the comment that businesses cannot be run for the benefit of employees is factually incorrect.

Though it does seem that Mondragon managed the FAGOR thing pretty well in the end...

The TV show mentioned something about Clerys being 'in trust for the employees' from 2002 until the time the Gordons came in. Does anyone know anything more about how this worked?

pedronomix

http://www.merrionstreet.ie/en/News-Room/Releases/The_Sale_and_Liquidation_of_Clerys.pdf

pedroeibar1

Interesting read but a rather futile exercise ("we must be seen to be doing something, so call for a report").

CatFromHue

The report seemed to be very light and didn't show too much more info than what the papers had, granted it was done as a summary and more info would be revealed over time.

It was Gordon Bros who split the company in two and then allowed the trading company's lease to lapse, by a number of months, when they sold it to Niatrium.

We'll never know really what they had in mind but it does look like they, Gordon Bros, only got involved for the property and had it set up nicely for the buyers of the company to get rid of the trading company.

pedroeibar1

CatFromHue wrote: »

The report seemed to be very light and didn't show too much more info........it does look like they, Gordon Bros, only got involved for the property and had it set up nicely for the buyers of the company to get rid of the trading company.

(i) Please do not tell me you are surprised that a report from a Govt. Dept. would be other than light when it interviewed none of the key people involved.
(ii) You're an engineer (I don't know what type) but were you to buy a machine for resale knowing that it was damaged and could be improved by repair/repaint/refurbish, would you not do all those things also? That's the equivalent to what Gordon Bros/Atrium did ('cept in retail real people are involved, not robotics).

CatFromHue

(i) nope, I wasn't
(ii) I dunno if that's a great analogy. I think what happened was more along the lines of buying a machine and then selling it for parts, or one particular part.