INTERVIEW OF THE WEEK: Alan Kinney
By Steven Vass

ALAN Kinney, boss of Ayrshire-based clothing chain d2, has had nerve-racking new seasons lately, but few are likely to match spring 2008.

The Sunday Herald has learned that the 80-store business has just chalked up its second year of £2 million losses, with turnover for the year ended January 31 down £4m to about £45m on the back of plummeting demand for cheap own-brand jeans.

Majority investor Sir Tom Hunter has just sold his stake, leaving management to sort things out. Meanwhile, the teetering economy has led to what Kinney calls the worst retail conditions since the early 1990s, despite the fact that price-cutting has boosted the industry's winter sales figures. Not that banks will make allowances anyway if d2's slow days at the cash register continue.

The fightback focus for d2's vital spring collection is jeans, jeans and jeans. While most think of d2 as a jeans store, they only contribute 20% of sales, with T-shirts the top seller on 25% and jackets, footwear, shirts and other trousers contributing sizeable amounts too.

The plan is to push jeans' contribution to 30% by next year with more styles, more brands and buy-one-get one-half-price type offers.

"The strategy is back to denim," says Kinney. "It's the one thing that came through strongly at the recent European fashion shows, and it suits what we wanted to do anyway."

Boy shoppers at d2 can expect the latest in loose-fitting bootcut jeans while girls' lines vary by region; Scottish and Irish girls like baggy "boyfriend" jeans, English girls, the skinny London look.

Good looks and silver hair give 56-year-old Kinney the air of an Armani or Versace. But it is hard to imagine those fashion tycoons ever having smelled cow manure outside their offices.

The d2 headquarters are a corrugated iron warehouse surrounded by farmland in deepest Ayrshire, which it shares with Hunter's West Coast Capital and his premium chain USC, run by d2 co-owner Jim McGonigle. Nothing in the bucolic setting betrays the presence of two of Scotland's largest retail operations.

The jeans-first strategy is a return to what Kinney and McGonigle did before partnering with Hunter in the merger of their Jeans for Sale chain with Jeanster and Fosters Menswear at the turn of the decade.

At the time, the category was being mauled by combat trousers. Denim belonged to the Nick Kamen generation, and its champions were 40-ish men-children such as Jeremy Clarkson. Although d2 was an abbreviation of Denim 2000, it was a conscious move towards a wider range of affordable clothing.

The new chain dreamed of years of rising profits and an empire of 150 outlets, but despite a few years of decent profits, it fell far short of expectations. The rise of Asda, Primark and Tesco sealed off the bottom end of the market.

"Our £10 jean isn't worth £10 anymore because you can buy it in Asda for four or five pounds," says Kinney, a rag trader at Glasgow's Barras market before launching his first store in 1988 with McGonigle, a sheet metal worker.

To survive, d2 is shifting upmarket and increasing stocks of branded garments. It has done well with the Benzini brand, and this year plans to introduce Jack & Jones, Blue Guru, Sonetti and Kickers clothing.

"The one thing we can offer that Primark, Matalan and Asda can't is a brand," he says, although d2's price points will remain in the £15 to £65 range.

Meanwhile, the chain will overhaul its store portfolio to reflect steep increases in central shopping mall rents, which have bled the balance sheet. Those central shops are where d2 does worst, anyway.

A cull of poor performers is planned, mostly in the Midlands and London, with a few new stores in more promising peripheral locations. Top performers include Glasgow's Braehead, Belfast, Dublin and Cambridge, and Kinney hopes to have about 70 outlets by next year. Also, look out for more careful market differentiation of the boyfriend/skinny sort. The policy of one-range-fits-all-stores is over. New buying director Natasha Hutchison will allow Kinney to stand back to an extent.

Kinney learned about retail segmentation strategy the hard way, through the shoe chain Qube. It too was owned by West Coast and based in the same country complex. But a plan to stock Qube footwear brands in d2 as a concession failed because brand owners hated budget associations. Qube has since decamped to London.

"There were too many balls in the air," Kinney concedes, looking uncomfortable to be even implicitly critical of Hunter. Scotland's richest man remains a good friend and they play in a charity band called Cash For Kids. Kinney sings and Hunter plays drums. Retail entrepreneur Chris Gorman is on guitar and software developer Chris van der Kuyl plays keyboards.

"The team is now focused on d2," adds Kinney, although he still oversees the Soviet range for USC.

It's a peculiarly mixed picture. Kinney and McGonigle have Hunter to thank for the size of the d2 business, but the tycoon's other interests appear to have played a part in d2's difficulties.

Kinney denies that Hunter led them astray. "When Qube came along we were more than happy to get involved," he says. Neither does he believe that d2 has been left in the lurch while Hunter pursues his other business and charity interests. Kinney says that West Coast always intended to exit after five years and would have made the standard private equity 20% return on investment over that period, whatever the later losses. Ownership is roughly 35% Kinney and 35% McGonigle, with the rest divided between six other managers.

"We are comfortable going back to just Jim and myself," he says. The company will continue to co-habit among the Ayrshire cattle with West Coast and USC. "Getting involved with West Coast has been fantastic. Look at what we've done and seen and people we've met."

Kinney is confident that the changes at d2 will help it to at least break even in the year ahead.

"No one is saying it will be game over, but obviously we can't keep running losses forever," he says.

"There's no room for negativity. We know what we have got to do. It's a hard task when things are good, so it's a tougher task when things are tough.

"I have never felt more confident than with the things that we are doing now. By the end of this year, we are going to see positive changes."

If not, there will surely not be many more spring collections left.