Sir Philip Green is drawing up restructuring plans to save his ailing Arcadia Group empire, but industry insiders have told Drapers the business is not sustainable in its current state, and selling the brands that are thought to be underperforming is the only way to revive its fortunes.
Arcadia is said to be weeks away from launching a company voluntary arrangement (CVA) after Green hired advisers from Deloitte in January to explore options including store closures. The group currently has 571 stores and 388 concessions across its UK portfolio.
Arcadia said in a statement last week that “significant” numbers of store closures were unlikely: “Within an exceptionally challenging retail market and, given the continued pressures that are specific to the UK high street, we are exploring several options to enable the business to operate in a more efficient manner. None of the options being explored involve a significant number of redundancies or store closures. The business continues to operate as usual, including all payments being made to suppliers as normal.”
It has been reported that up to 30 stores will close across the group. However, retail property experts have told Drapers that this figure “only scratches the surface”.
One property source suggested that between 25% and 30% of the group’s portfolio – around 230 stores – will have to be offloaded to “fix” the retailer.
Drapers understands that Arcadia had been discussing possible restructuring and CVA options with Deloitte and property services firm CBRE as far back as May 2018. However, Drapers understands that CBRE has now declined to work with the group on any CVA.
JLL also reportedly refused to work with Arcadia’s advisers, but Drapers understands the firm was not approached to advise on this matter. CBRE, JLL and Deloitte declined to comment.
One source said a CVA across the entire group is unlikely but would rather take place across multiple individual brands: “It’s taken Arcadia a long time to create entity to support a CVA. To propose a CVA you have to demonstrate the only alternative is insolvency. I don’t think the whole of Arcadia is ready to go insolvent, so it will be multiple CVAs, across Dorothy Perkins and Burton, for example.”
To stem its losses several industry sources suggested Arcadia needed to sell the loss-making smaller brands, such as Miss Selfridge, Evans, Wallis, Dorothy Perkins and Burton.
“To get back on track, Philip Green needs to sell all of the other brands and keep Topshop,” said Jonathan de Mello, head of retail consultancy at property firm Harper Dennis Hobbs. “The problem is that it’s very hard to do that because the Arcadia brands have shared offices, services, and finance operations. It will be difficult to separate these.”
“Topshop has always been the sole contributor to profits in Arcadia Group and the other brands have not been contributing,” said one finance expert. “Topshop is recoverable, but the other Arcadia brands are tired and stale, and in the long term will be labelled as unstable.”
A partner at a retail property firm agreed: “Brands like Burton and Dorothy Perkins have been struggling over the last 10 years. Arcadia knows they are diminishing brands, therefore needs to get rid of them.”
In its most recent results for the year to 26 August 2017 Arcadia’s parent company, Taveta Investments, reported a 42% drop in group operating profit before goodwill, amortisation and exceptional items, to £124.1m year on year. Total sales were down 5.6% year on year to £1.9bn.
Richard Lim, chief executive of research company Retail Economics, said: “Arcadia needs to take a forensic approach to operating costs. It is under pressure of costs associated with such an expansive store portfolio. Reducing costs and streamlining efficiencies need to be at forefront of its turnaround plan – along with creating a brand and proposition that resonate with its core target audience.”
Arcadia declined to respond to industry comment.