“Department stores have always been marketplaces” (Roland Armbruster, CEO Coin)

The Italian department store chain Coin is taking advantage of the corona crisis to redefine itself and prepare for the future: “You can’t stop the online wave, but you can surf it.”

Burning platform

“Italy now seems like a different country than it was before the coronavirus outbreak,” says German top executive Roland Armbruster, known to retailers in the Benelux from passages at De Bijenkorf and Intertoys. “It’s a disaster for retail: frequency is at minus forty, minus forty-five percent on an annual basis. Turnover is also significantly lower now that the stores are open again. My expectation was that people would come shopping again after the lockdown, and enjoy their freedom, but that didn’t happen: people stay at home. I recently visited Milan: there was hardly anyone at La Rinascente or the Duomo. The city is unrecognizably empty. We miss the tourists, there are no Asians.”

Corona is a heavy blow for the economy, but it is what it is: you’d better make the best of it, the manager thinks. “We are taking advantage of this crisis to restructure, to change things that were unthinkable before. You no longer need to create a ‘burning platform’, because the platform is really on fire. That helps.”

Weathering the storm

In the north of Europe Coin is not so well known, in the south it is a household name. In Italy the company has about forty department stores. Each of those department stores has a successful home department, ‘Coincasa’, and under that name about seventy stores operate autonomously, in Italy and in other southern European countries, including Spain, France, Slovenia, Serbia, Bulgaria and Greece.

“We operate about ten of these stores ourselves, while we franchised the other stores. It’s a fun concept that’s well known and loved by the Italians. It delivers value for money and it is also very profitable. This is the sweet spot of our business. A department store doesn’t travel that easily, but with the Coincasa stores we can grow further abroad. But first we have to save the company and see that we can weather this storm. Last year we had a turnover of almost 400 million. This year we expect a turnover of around 230 million euros…”

Smaller shops

Armbruster was recruited to take on that big challenge: “They were looking for someone with a fresh view from the outside. I have twenty years of experience in the department store sector and I also have experience with restructuring, so that was a good match.”

How does Coin stand out from other department stores? What identity does the retail brand have? “Coin has smaller stores than, for example, Karstadt, which has department stores that measure 10 to 15,000 square metres. Yet we offer a compelling assortment: our main categories are cosmetics, men, women, accessories and home. No sports. Nor do we have big restaurants in our stores, because we don’t have the space. However, we are working on a smaller, up-to-date food concept. About 70% of our turnover today comes from concessions and we’re going to put even more effort into that. The remaining 30% can be split into 15% wholesale and 15% private brands. We are positioned in the upper middle segment, with men’s brands such as Pal Zileri, Hugo Boss, Lacoste, Tommy Hilfiger… We also have a few Coin Excelsior stores that are positioned a bit higher in the market, where we also rent space to premium brands such as Tiffany”.

“You can’t ignore omnichannel.”

Does the executive see a future for department stores in these circumstances? He has no doubt: “Ever since I’ve been working in this industry, now for about twenty years, department stores were called the dinosaurs of the retail world, they would become extinct. But here we are, twenty years later, and they still exist. There are fewer of them, but they are evolving and they are blending offline with online better and better. I think that’s the future: you can’t ignore omnichannel. It will be a blend of physical and digital retail.”

A department store is a marketplace, says Armbruster, and that is a very topical concept: “Everyone is always talking about digital marketplaces today, but that’s exactly what we are as department stores: we are a marketplace. We have everything under one roof: all the different product groups, services, restaurants, bars… everything you want to see on a market. If you go to a piazza in a city, it’s a market: you can buy things, meet people… Those new digital concepts, those marketplaces, it all existed in the physical world. That’s the department store. And if you get the chance now to bring both worlds together, digital and physical, that’s the future.”

Bringing worlds together

To colleagues who complain about the increasing competition from online sellers, he says: “We can’t stop this wave, but we can surf it. If we do that right, for example by giving people the chance to pick up their online orders in our stores, we will attract new customers: they will drink a cup of coffee here and maybe buy some accessories. That’s how we bring those different worlds together.”

But the company will need to step up its game, he says: “You may not believe it, but we’ve only had a webshop for our Coincasa business for five years and we haven’t invested in it since its launch. The plan is now to move forward at full speed to develop an online offering for our department stores and to upgrade the Coincasa webshop. This will make it a real omnichannel business. We’ve just spoken to a lot of potential partners who can help us with that project and I’m optimistic that we’ll make a decision within a few weeks.”

Lower rents

Does Coin have the money to invest? “Money is always an issue, especially now. On the upside, we can now get funding guaranteed by the government. This gives us the necessary working capital to bridge the next twelve months. That’s a big help: without that guarantee, no bank would want to lend us money. That goes for most retailers, I think.”

A crisis also has its advantages, according to the manager. “We renegotiate rents with all our landlords. Until last year they didn’t want to move, but now they have to. The average area of a Coin department store is 2500 to 3000 square meters. For a location in city centres that is rather large. If we leave there, what can an owner do with that property? No one will want to rent a space like that today. They used to say: okay, leave, we’ll turn it into a hotel or office space. But now that people work more from home, there’s less need for office space. Hotels don’t invest in expansion anymore. The world has changed drastically for real estate owners, and slowly but surely they recognize that too. That’s why they are now willing to renegotiate rents with us. In the past, we sometimes paid 12 to 15% of the turnover in rent. Now we aim for a variable rent of 7 to 8%, a maximum of 10%, depending on the location. High fixed rents are a thing of the past.”

Changing way of working

Drastic store closures are not on the schedule. “We analyze our network store by store. If we get the rent at a level that makes or keeps the store profitable, we keep it. And otherwise we don’t. But at the moment, all our stores except one are EBITDA positive. So it is not our intention to close many stores. On the contrary, we have just signed a contract for an opening in Turin, and we are in discussion with a mall owner in Rome. We are taking advantage of the situation with lower rents to grow again.”

The necessary changes within the company will require a lot from the employees, says the manager. “Italians are very nice people, but the employment contracts are very rigid. Our challenge now is to break open those contracts and go from long, fixed contracts to shorter, variable contracts. That’s not easy. We’re asking people to change the way they work.”

“We shouldn’t hide behind Amazon”

Coin has long since ceased to be a family business: the retailer was in the hands of a capital fund that sold the company two years ago to the managers and a coupe of Italian entrepreneurs. Nevertheless, the employees and the customers are very involved. “The department store has a long tradition in Italy, it is part of society here, just like Barilla, for example. It has always been the store where you came with your family to shop at the weekend. You grew up with Coin, you know the shops from your childhood. So there’s a very positive attitude towards the brand.”

In spite of everything, the top man shows himself to be reasonably optimistic. “The biggest threat is that we focus too much on the online world. We shouldn’t be ashamed that we’re a physical business. We shouldn’t hide behind the Amazons of this world: we should be proud to be a physical retailer entering the omnichannel world. We have to make sure that we do what we do best: those physical contacts with the people we welcome in our stores every day. If we do our job well, we have a bright future.”

by Erik Van Heuven and Stefan Van Rompaey

– photo: RetailDetail – 

Who’s Roland Armbruster?

The German manager started his career at Porsche Consulting and ended up at Breuninger, one of Germany’s finest department store chains, for an assignment. After a few months, he was offered the opportunity to join the management team. “That was a big step for me, but it worked out well and I stayed there for six years.” Until a phone call came in from a capital fund: would Armbruster be interested to come to De Bijenkorf? He helped prepare the company for the sale to Selfridges Group. Then another tough challenge presented itself: a restructuring at Karstadt and the KaDeWe Group in Germany. The last stop before Italy brought the manager back to the Netherlands, to lead Intertoys. A story of which the outcome is now known. “Restructuring retail businesses, that’s the common thread in my career. Not that I’m such a smart guy, you know: 10% is strategy, 90% is execution.”