RETAIL MARKET:Mango's sales operation in Ireland will shortly be confined to the Arnotts concession following a decision to close Mango shops in Dundrum and Swords
IN LATE 1999, when businessman Hugh McGivern first offered the developer Paddy Kelly and his family the opportunity to acquire a stake in the Irish operations of the popular Spanish fashion chain Mango, it must have seemed a simple way to cash in on the roaring rag trade. But more than €6.5 million later the Kellys have little to show for their investment.
After years of poor sales results and soaring overheads the six-store franchise operation has collapsed leaving the family's first foray into the fashion world in tatters. It was supposed to have been the perfect marriage: the Kellys would use their renowned property expertise to roll-out an established brand whose poster girls have included Penelope Cruz, Claudia Schiffer and Lizzie Jagger.
Instead it has become the stuff of nightmares. Last week the Cork shop on Patrick Street was closed and its lease put up for sale. In December the shutters were pulled on the Galway unit. The Limerick shop was shut down in February. And the two suburban Dublin outlets in Dundrum and Swords are due to close within the next few weeks. The only shop that remains trading is Arnotts after the Kelly family handed control of the concession space to Mango for free, even though it ranked as the sole profitable unit in the business.
It has been a bruising, and at times embarrassing, venture for the family. Earlier this year, Simon Kelly, director of Fabline Ltd and Limited Venture, the companies under which the Mango franchise in the Republic operated, was forced to cough up €20,000 to a charity after the family's business partner, Hugh McGivern, brought a High Court action against him over a threatening e-mail.
The Kelly family had agreed to buy out McGivern's remaining 50 per cent in the company in April 2006 for a reported figure of €5 million.
But a dispute centring on this share purchase agreement prompted Kelly to fire off an e-mail to McGivern in which he wrote: "If you continue this action regarding Mango, I am going to be forced to seek to cause you loss and pain in other business arrangements. There are plenty of places that I can hurt you and you can hurt me." Kelly also referred in the e-mail to "preparing the defence against your bullshit claim for the 1m" and accused Mr McGivern of breaking an agreement on flexibility of a schedule of repayments.
Despite the pain of the business' collapse, the Kellys are preparing to go to court again. And this time they hope to emerge vindicated. For according to the veteran property developer Paddy, and his son Simon, the Barcelona-based retailer undermined their business by failing to provide adequate marketing support. They also accuse the company of delivering "insufficient and inappropriate" stock levels.
It is a series of complaints that the Spanish fashion chain has heard before. In fact, the company is defending its behaviour towards its franchisees in two separate lawsuits underway in Barcelona and the US.
According to court papers filed at the United States District Court Western District at Seattle, Washington state last March, and seen by The Irish Times, JM Vidal, a Mango franchisee, accuses the firm of "predatory" and "fraudulent" conduct. In the papers JM Vidal alleges that Texdis, Mango's franchising company and its affiliate wholesaling company, intended the franchise stores in the US to fail so that it could acquire the shops and turn them into company-run locations at a bargain price.
JM Vidal also accuses the retailer of reneging on its commitment to financially contribute to the advertising of the brand in the US and also alleges the company misled its partners by giving inaccurate and misleading information in relation to the costs and expected profits of a Mango franchise operation.
In addition to the US class action, the Spanish firm is awaiting a judgement from a Barcelona court, after another franchisee, Lacoste Enterprises, took a case against the company.
Jennifer Lacoste, who owned the business, operated three Mango stores in Brighton, Croydon and London's Kensington High Street but the venture collapsed at the end of 2006.
At one stage Mango had 12 franchise stores in the UK. But all have either closed or are run directly by the retailer.
Mango declined to discuss the lawsuits, however an official within the company's head office stated: "Mango has more than 700 really satisfied franchisees, who would not be there if there was something wrong with our model."
The Kelly family is now seeking redress for its franchise operation failure and they plan to join forces with other disgruntled franchisees and take legal action against the retailer.
Simon Kelly claims Mango stopped providing Fabline and Latest Venture with new stock last October. He also recounts how the retailer supplied small quantities of its topline garments - Mango has a three-tier grading system for its products - while delivering large quantities of its lower-rated stock.
He says there were "times when we had women literally crying for a certain dress" but points out the poorly managed supply chain prevented them from dealing promptly with such requests. "Essentially we were getting the wrong stock in the wrong place because Mango did not have a proper technology system in place."
He adds the retailer failed to stock the Dundrum Town Centre shop with some of the chain's celebrity clothing lines and provided insufficient volumes of the popular Penelope Cruz range in 2007, which is designed for Mango by the actress and her sister Monica Cruz.
He also accuses Mango of diverting stock intended for Irish franchise stores to corporate-managed locations.
All these points were put to Mango, however the company declined to comment.
It was the concession unit in Arnotts, where profits were consistently strong, that first convinced McGivern and then the Kellys to acquire the franchise.
However late last year, Mark Delaney of Detail Consultants, who works on a number of projects with the Kelly family, advised the closure of Fabline and Latest Venture, due to what he describes as the "unworkable" structure of the franchise agreement with Mango. And he says that when the Kellys made contact with other franchisees they realised the problems related were a "carbon copy" of their own difficulties. "It is acutely embarrassing that a business has been forced out of existence in this way," he says, "but that is exactly the same story that has happened" in other countries.
Yet when The Irish Times contacted Mango prior to the closure of the Cork shop last week, an official in the firm's head office, who wished not to be named, said the retailer had "tried to make the operation work with the Kelly family for many years", and he claimed the company had "even provided financial help during many, many months".
Asked why the Kelly's venture collapsed, he answered it "failed for a number of reasons, not just financial ones" and said Mango was "looking for a way to remain in operation in Ireland". He also said the company was not informed of the closure of the Limerick store in the Crescent Shopping Centre and claimed he was unaware how many more shops were due to close. "This is not an ideal situation for us," he said.
According to Simon Kelly however, Mango was notified in writing last December of the imminent closure of the Irish franchise operation.
Mango is one of Spain's largest retailers with 1,111 stores in 89 countries; 716 of those outlets are franchise shops. The women's fashion chain recently posted an 8.2 per cent rise in its 2007 turnover to €1.02 billion and announced plans to invest €100 million to open 180 stores globally this year.
