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Can the Arcadia empire strike back?

Once the darling of the high street, Sir Philip Green’s Arcadia Group has been battling dwindling sales, profits and footfall as shoppers move on to fast fashion, digital-native rivals. 

However, as well as finally launching its company voluntary arrangement (CVA) proposals – seven across various Arcadia brands, which are due to be put to a vote on Wednesday – Green has conjured up a £135m rescue plan for the once-mighty retail empire.

The plan involves investing £75m in refurbishing stores and £60m into enhancing the group’s online offer over the next three years. Alongside this, Topshop/Topman is to be sold on Asos for the first time.

The strategy attracted praise from both the consumer press and fashion industry insiders, and will come as welcome news to customers used to Asos’s slick delivery and returns.

“I think it’s symbolic – Topshop could and should have gone on Asos years ago,” says retail analyst Richard Hyman. “Arcadia needs all the incremental business it can possibly get, and going on Asos will generate that.”

Chloe Collins, senior retail analyst at research firm GlobalData, adds that selling on Asos will help to increase Topshop/Topman’s international reach. This is key, as Arcadia has announced it will close all 11 of the brands’ stores in the US in the face of “unprecedented” market conditions.

International sales have grown consistently at Asos, and were up 12% to £799.8m in the six months to 28 February.

“With Asos gaining market share over the past few years as online retail has come into focus, the decision to start selling Topshop/Topman through the platform will allow the brands to extend their customer reach,” Collins points out.

However, she adds that improving its own online offer is essential: “Arcadia is wise to be investing £60m into its own websites to boost more profitable sales, as Asos will always take a share of the revenue driven.

“Topshop/Topman should invest in a delivery-saver scheme to compete with Asos Premier, and also offer more competitive prices for normal deliveries. Its standard delivery price is £4 and is free over £50, in comparison with Asos at £3 and free over £25.”

One supplier to Arcadia agreed that wholesale was the way forward for the group: “I think the only way [Arcadia] is going to survive is through wholesale. They sell some brands on Asos and Zalando and they do really well. They can sell some really large quantities of clothes through these platforms.”

The tie-up makes sense for Asos, too. Although its group revenues were up 14% to £1.3bn for the six months 28 February, its pre-tax profit fell 29.9% to £4m following heavy investment in its technology platforms and logistics. It follows a shock profit warning from the etailer towards the end of 2018.

Asos has been reviewing its brands as part of its strategy to boost sales. During the six months to February, it axed more than 280 brands and added 190 new names. It is focusing on securing smaller, up-and-coming brands to sit alongside more established names such as & Other Stories, which launched on the site for the spring season.

Property experts also welcomed the £75m earmarked for improving Arcadia’s stores.

One property agent says it is playing catch-up after years of under-investment: “Every time we get a Dorothy Perkins or Evans back when a lease expires, it shows substantial dilapidation. [Green] hasn’t spent money on his stores for years.”

However, some observers argue that the problems at some of Arcadia’s fascias run deeper than tired shopfits – they agree that Topshop/Topman is the jewel in Arcadia’s crown, but Burton, Dorothy Perkins, Evans, Outfit and Outfit Kids, and Wallis have lost relevance in the market.

“The problem with Evans is that it focuses on plus sizes, but other retailers and brands have extended their ranges [to include bigger sizes],” notes Collins. “Its unique selling point has disappeared.”

One Arcadia supplier says Wallis has been hit by the problems at Debenhams: “Its biggest outlet is Debenhams and the struggles there have hurt Wallis. The woman who used to only go into Marks & Spencer and Wallis is not there any more. Everyone goes everywhere now – they shop around, people don’t care.”

Another Arcadia supplier tells Drapers the group has failed to keep up with rivals such as Primark: “Primark and the supermarkets have killed Arcadia on price and fashionability, so I can’t see how they can recover their business at this stage.

“[Arcadia brands] aren’t necessarily more expensive than before, but there are more and better options out there now. If [Green] drops his margins overnight, will it increase sales? It’s difficult to get to Primark’s level – it’s easier to start from the bottom [of the market], rather than come down from above by reducing prices.”

Apart from stores, investment in staff and training is also an issue Arcadia needs to address, according to one former Evans buyer: “When I started at Evans, they had the best systems and best training out there, but Green got complacent and stopped investing. The world overtook him.

“He has incredibly loyal staff, and they have been there a long time, but the flipside is they only know one way of doing things. There is resistance to change in the group.”

Whatever happens at the vote on Arcadia’s CVA proposals, radical change is needed if the group is to survive. Arcadia declined to comment. 

The Drapers Verdict

Green has finally placed his bet on rescuing Arcadia, but the big question is whether £135m is too little, too late. The group is a mish-mash of brands, most of which have lost their relevance in the market.

It needs major surgery on its stores and it is out-priced by rivals. To turn it around, Green needs to wake up to the changing landscape of retail. He has grudgingly begun to do so – the partnership with Asos is a no brainer – but will much-needed changes to its own websites and stores happen fast enough? Arcadia’s rescue plan could be Green’s last roll of the retail dice.

 

 

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