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Arcadia CVA proposal insufficient, say landlords

Landlords and property experts say Arcadia’s CVA proposal does not close enough stores and lacks detail on a retail turnaround.

Arcadia Group – owner of brands including Topshop, Topman, Miss Selfridge and Burton – has proposed seven CVAs across its companies. If approved, it would result in 23 UK store closures and rent reductions and revised lease terms across 194 locations.

However, experts are concerned that the retailer has yet to lay out sufficient recovery plans to convince landlords of its future viability. In the CVA proposals – seen by Drapers – Arcadia continues to take little responsibility for its current financial position, blaming a tough market and its competitors.

“It’s a very underwhelming document,” said Mark Williams, partner at retail asset manager Hark Group. “You stand back from it thinking, ‘Why bother?’ That is my overarching question: why go through all this effort, and the cost?

“Debenhams did a fantastic presentation in the autumn, which was all about how they were taking the vision forward. They absolutely set out a vision for what their future would be. Whether you agree or disagree with them, I get who they are trying to service. I see nothing of that in this – it’s completely focused on numbers.”

Williams added: “What you need to see is a proper business plan. You need investment in people – across all the businesses. Where is the discussion about how those businesses are going to operate? This is all about trying to cut cost.”

Experts are also surprised by the low number of stores earmarked for closure.

“It does seem a small number,” said one source. “You wonder why he’s going through the process for that amount of closures.”

However, landlords said more closures are to be expected among those properties facing rent cuts and lease negotiations.

One landlord told Drapers: “Everyone always focuses on the top number of store closures, but you need to focus on the middle tiers. A lot of those will have breaks in there as well and you might see a subsequent load of other stores closing 12 or 14 months down the line.”

Landlords have been offered a 20% equity stake in any future sale of the business. However, with no insight into the company’s future viability this has not been greeted enthusiastically, and their approval of the proposal still seems uncertain.

“The landlords I’ve spoken to – the last thing they want is an equity stake in that business. They’ve been absolutely back and white about that,” one property expert told Drapers. “There is a much wider nervousness about doing anything with Arcadia any more. I sense it’s not going to be easy.”

The CVA proposal documents revealed with more clarity the financial position of the group. Like-for-like retail sales declined by 9% for the 2018/19 financial year, and there was a 1% reduction in gross margin. EBIDTA has deteriorated from £219m in the 2015/16 financial year to £68.2m in 2018/19. It is forecast to decline further to £30.2m for 2019/20. However, on the execution of its recovery plan, the group predicts to recover this figure to £80m, rising to £117m for 2021/22.

To achieve this, the group will have to focus heavily on its online offering, said Peel Hunt analyst John Stevenson.

“The whole online offering is significantly behind competitors,” he told Drapers. “They’ve got a standard delivery service that is up to a week to store, but next-day click and collect is the expectation.

“They’ve been very resistant to use third-party platforms, which is going to be key. That is where your target customers are. Some of the most successful brands on Asos are the likes of New Look, Missguided and Boohoo – it’s where the customer base is. It’s not about putting your entire offering on there and losing your IP, it’s about making sure your brand stays relevant to that consumer.”

Should the CVA be rejected by creditors, it is expected that Arcadia will fall into administration.

On that prospect, one property source said: “Is that a bad thing? Wouldn’t it be better that it goes into administration instead and someone can buy that business? Bar Burton, they are good brands with a good target audience, and maybe they could do a turnaround. I don’t know if there are retailers out there with the appetite though.”

 

 

 

 

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