LEADING QUESTIONS: Expanded Kahn’s banks on holidays

Welcome to the latest installment of “Leading Questions: Wisdom from the Corner Office,” in which IBJ sits down with central Indiana’s top bosses to talk shop about the latest developments in their industries and the habits that lead to success.

Local retail mainstay Kahn’s Fine Wines & Spirits is gearing up for what could be its biggest day of the year—New Year’s Eve—in what assuredly will be its biggest month ever in terms of sales. Jim Arnold, owner of the three-store chain with his wife, Cheryl, hopes to post a record $1.1 million in revenue for this December. That’s more than double what they would expect in an average month.

“This is when it all happens,” Arnold said. “Without a doubt, the last five weeks of the year, we make hay.”

The boom is due in good part to Arnold’s aggressive expansion plans, which led to two new locations in late 2010. In October of that year, a 15,000-square-foot store opened at 2342 W. 86th St. in the North Willow retail center, and the following December, a 4,500-square-foot shop debuted downtown at 25 N. Pennsylvania Street.

Also purchasing the real estate for the locations, Arnold invested about $3.4 million between the two projects. Each required extensive renovation of a pre-existing retail site, and bank financing.

“I always need financing,” Arnold said with a laugh. “It is a bit of a problem that I have, that I’m always looking for the next deal just two or three years before I really should.”

Arnold took the long-term view in purchasing Kahn’s in the 1990s. He first became acquainted with husband-and-wife founders Carol and Louise Kahn when he worked as a sales manager for wine importer Kobrand Corp. in the 1980s. Looking for an opportunity to own his own firm, he approached the Kahns about buying their one-store business at 54th Street and Keystone Avenue.

They weren’t initially receptive, but that changed after Louise became terminally ill with cancer. Carol invited Arnold to work for Kahn's and take over Louise's duties handling wine sales, advertising and marketing; Arnold then suggested a deal that would make him a 10 percent owner. Joining the business in 1988, he began purchasing more ownership shares from Kahn until finally buying him out in 1995.

Arnold first expanded by opening a Carmel location in 1996 with a partner; Arnold sold his ownership stake in the location, now known as Vine & Table, in 2007, he said. Chafing at the space restrictions of the 2,500-square-foot flagship location, Arnold engineered a deal in the mid-2000s to buy property a few hundred yards to the south and build a 15,000-square-foot superstore and headquarters. (The entire project cost, Arnold said, was more than $1 million.) Opening in January 2007, the flagship store nearly doubled annual sales, from about $3 million in 2006 to close to $6 million in 2007, Arnold said.

Sales subsequently weakened during the recession, dropping below $5 million for a time. But Arnold remained aggressive, mapping out plans for new stores and buying the properties.

“What is it—buy low, sell high? Real estate certainly works that way,” he said of the North Willow purchase. “And if you have an opportunity to buy real estate that was half the value a few years earlier, history says it will go back to where it was eventually, and probably more. And if you can take advantage of buying when the market is low, that was the whole idea. And maybe it was a riskier time to go, but I felt confident enough in the Kahn’s brand and model that it could push its way through the tough times.”

Sales at the flagship locale have picked up since the recession’s end, although the two new stores have had a dampening effect, Arnold said. He expects $7 million to $8 million in total sales between the three stores for 2011.

He declined to discuss specifics, but estimated that 80 percent of the stores’ profits come from the holiday-laden fourth quarter alone. And, predictably, the last two weeks of the year will account for half of his annual sales for bubbly products like champagne and sparkling wines.  

In the video at top, Arnold recounts his early dreams of being an entrepreneur and how he became a partner in Kahn’s. He also discusses how operations and his duties have changed since opening the two new stores in 2010. In the video below, Arnold talks specifically about the holiday season and how it affects the balance sheet.

Arnold believes that the future is secure for Kahn's, but worries about the gradual disappearance of mom-and-pop liquor stores on the whole.

"In a lot of states, this is actually a dying business," he said. "The big box stores and the grocery stores are eating away at the mom-and-pop stores of the liquor industry. Kahn's is kind of spacialized store that I think will always have a niche. But how about a liquor store in small-town Indiana, and a Walmart opens up a mile away? That Walmart is sending a lot of smaller independents out of business. Liquor stores are no different."

The industry's legislative initiatives for Indiana include blocking attempts to allow liquor sales on Sundays. Grocery stores, which Arnold says are helping lead the charge for Sunday sales, would stand to benefit the most.

"They're already open on Sunday," he said. "All they have to do is open up that aisle. They already have the employees. They're already paying the ligtht bill. It's pure plus sales for them. For us, it's another day of paying payroll, paying expenses that we didn't normally pay, and we dont think we'll get one-seventh more sales out of it. For sure not. We think that six days' sales will pretty much spread over the seven."