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Arcadia sale speculation sparks debate

Topshop slide

Sir Philip Green’s Arcadia Group has found itself under further scrutiny this week after speculation about a possible sale – which Green dismissed as “totally false”.

Green denied reports that he was in discussions to sell off at least part of his retail empire to Chinese textiles giant Shandong Ruyi, which is based in Jining in northern China.

A statement from Arcadia asserted: “Neither Sir Philip nor any of the directors of Arcadia have ever met or had any contact with Shandong Ruyi, and they have never been to the Arcadia offices, as was suggested, to look at the company’s books. We have the greatest respect for them as an organisation, but have had no dealings or contact with them.”

A spokesman for Shandong Ruyi added that it “has no new brand acquisition plan at the moment”.

Sources told Drapers that, sale or no sale, Arcadia needed to take on online fashion players such as Asos, Missguided and Boohoo to stand its ground in the current competitive climate.

One Arcadia supplier said: “As a UK-based manufacturer, we’re doing more business with the [pureplay] retailers than we are with [traditional] retailers. We’re also making more profit from them.

“The key for Arcadia is to get rid of most of its stores – keep the main flagship, but concentrate and invest more in online retail. That’s where the future is.”

An industry source agreed: “[Arcadia] fell behind in terms of technology. They were slow off the mark to realise how important the internet was going to be as a means for retailing. They allowed Asos and others to take what should’ve been theirs.”

He added that if a sale were to take place, the group would likely remain intact: “There are too many fascias that are no longer relevant, so I think that, if Arcadia was sold, it would seek a one-size-fits-all solution, not a broken-up group.”

One retail analyst said Arcadia’s property portfolio needed ‘“to be slimmed down significantly” and that its eight fascias – which include Burton, Dorothy Perkins and Evans, were “beyond tired”: “In an oversupplied market it will be very difficult for anyone to make a success of those brands. They have steadily been losing market share for many years. But extricating a brand out of the group would be extraordinarily difficult.”

Another analyst reflected on the business’s retail estate, thought to total 2,800 stores: “Even if Green does sell these businesses, he will still be the major landlord and therefore still have skin in the game, so it’s not likely a sale would mark a total exit by him.”

A property source agreed: “I wouldn’t imagine a deal would include the freehold estate. He’s been approached by interested buyers for [Topshop’s] Oxford Circus [flagship] many times in recent years and he’s turned them away.”

Documents published by MPs last year estimated a £565m pensions deficit at Arcadia at 31 March 2016 valuations, rising to £993m on a buyout basis.

Although sources said this may “chip away at the value” of any deal, Arcadia has undertaken to pay £50m a year into its pension fund, and said the most recent payment was being made this month. It added that the group “remains unborrowed at the operating level and has substantial property assets”.

In its most recent set of accounts, Arcadia’s parent company, Taveta Investments posted a 17% drop in total turnover to £2bn in the year to 27 August 2016, while pre-tax profit plummeted by 79% year on year to £36.7m.

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