FEW AREAS present as acute a management challenge as the retail sector at the moment. For many, survival is the overriding ambition, as consumers keep their money in their wallets.

Arnotts chief executive David Riddiford is facing additional challenges. Not only are his team wrestling with the downturn, but they are plotting the creation of a new “Northern Quarter” development, and opening a new store concept targeting younger consumers.

Riddiford reiterated this week that the Northern Quarter project was going ahead, but would now be rolled out in stages.

Building was due to start on the 5.5 acre site later this year. Now, however, phase one – a new seven-floor 315,000sq ft Arnotts store on the corner of Dublin’s Abbey Street and Liffey Street – is not expected to begin until 2013.

The Northern Quarter makes sense in the medium to long term, according to Riddiford. “The retail/residential mix . . . activates this side of town,” he says.

“But in the current economic environment it now makes sense to stagger the project – to build in phases. Funding and cash flow is a huge element of the short term.”

Arnotts is estimated to have paid €100 million to acquire the site, which fronts on to O’Connell Street, Middle Abbey Street, Liffey Street and Henry Street.

In February last year it announced plans to close its Henry Street store and decamp to a smaller space – the old Debenhams property in the Jervis Street shopping centre. It announced redundancies and served notice to its concessions.

By the end of June, objections to the development’s 16-storey residential tower meant the group had to resubmit plans, a process that could take months or more.

Arnotts decided to continue trading on Henry Street, but was confronted with a 17-year lease on the Debenhams unit. “We didn’t intend to trade in two stores simultaneously, each within 200m of each other,” says Riddiford. “But it presented an opportunity to create differentiation.”

The Jervis Street premises is now Arnotts Project, a four-floor store for 20- to 39-year-olds, which was launched this week. In the longer term, Arnotts Project has the potential to become a multiple that could be rolled out across the State, Riddiford says.

The new Arnotts flagship store will have a footprint of 45,000sq ft. “It’s a better layout for a department store,” says Riddiford.

Concessions are the way forward, he adds. Arnotts currently has an estimated 22 per cent of its floor space dedicated to concessions. “Typically it represents more than 50 per cent of a department store’s business.”

Arnotts aims to have 30 per cent to 40 per cent of its business as concessions.

But in the mean time, with plans for the Northern Quarter stalled, the department store has started to look rough around the edges.

“We haven’t spent any money on the store,” Riddiford admits.

“An interim makeover costing in the region of €10 million will get four years’ worth of new life out of a capital programme modernising 30,000sq ft of the store.”

This starts later this month and will include a new cosmetics hall and new windows that open up the store to the street.

The current retail environment is the most challenging the Englishman has experienced in his 35 years in the business. Trading is difficult, he admits. The average unit transaction value is down, and the toughest departments are furniture, womenswear and menswear, in that order.

But Riddiford is confident about the future. He recently hired a troupe of new buyers, mainly from the ranks of Brown Thomas.

He has also recalibrated purchase orders. “Before, we would buy 90 per cent up front and keep 10 per cent for the season. Now we’re buying only 60 per cent up front, leaving 40 per cent room to manoeuvre.”

Costs are down too. “We’ve renegotiated maintenance, light, heat and power, and discretionary spend is also down. We’re now buying forward our sterling, which helps contain prices.” The store has also cut its opening hours.

It is going to be tough until the end of the summer, says Riddiford. Typically, a department store makes more than 80 per cent of its profits between October and January.

But in the current climate is there room for both the Northern Quarter and the nearby Carlton cinema site development? According to Riddiford, Caci, the UK’s largest consumer and market analysis company, “has told us that both schemes will succeed individually but will be much more successful if they’re both here”.