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Green vigilant despite Arcadia performance

Sir Philip Green this week revealed his caution about the outlook for next year as he unveiled a strong performance by his Arcadia stable of brands.

Arcadia grew pre-tax profits 13% to £213.6m in the year to August 29, but Green warned there were “issues down the track you cannot not be concerned about”.

Despite describing himself as “optimistic but cautious”, Green warned increasing unemployment and next year’s business rates revaluation would have an impact, and said it would be impossible for retailers to absorb all the impact of the January 1 VAT increase.

“For every £1bn in sales, from January 1 you’re going to be £20m underwater,” he told Drapers, adding that retailers would either have to re-engineer products and business processes, or put up their prices to make up for the increase.

Sales were up 2.7% to £1.9bn on flat like-for-likes during the period, with young fashion chains Topshop, Topman and Miss Selfridge once again having record years. The performance from the group’s mainstream fascias, which include Wallis, Burton, Evans and Dorothy Perkins, was less strong. “It appears the young market’s OK but the main market is hard work,” said Green.

However, he said he was pleased with the year overall, particularly in the light of the state of the wider economy and a very difficult first quarter last autumn. “This is a good performance,” he said.

Like-for-like sales in the first seven weeks of the new financial year were up 2.3%.

The figures don’t include department store chain Bhs, which became part of the Arcadia group in July. Green said that inserts of ranges from Arcadia’s mainstream chains into Bhs stores would be extended from 30 stores to more than 100 by March, which would mean they were in about half of Bhs’s stores.

He said in some locations this would enable smaller Arcadia stores to be closed, and that the future for the group lay in “fewer, bigger stores”. “Every retailer will tell you bigger space is cheaper than smaller,” he added.

Chief operating officer Ian Grabiner, who has overseen the integration of Bhs into Arcadia, is being promoted to chief executive of the merged group. Green said greater efficiencies in the business had helped improve profitability, but insisted it wasn’t about cost cutting, saying Arcadia only had 587 fewer people in the business than a year ago, out of a total of 30,000.

“We’ve got a world-class supply chain, we’re quick on our feet and use economies of scale. We’re not about cost cutting – it’s knowing how to do things more efficiently.”

Green said the New York Topshop flagship was performing above plan and had made a positive contribution in its first year. Green said he was planning further stores in the US and to enter Italy, France and China, although he added no deals were imminent. He insisted the group’s internet business had continued to grow, but declined to provide details.

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