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Arcadia: Goodnight for retail’s bad knight

The past decade has been a roller-coaster ride for Britain’s real-life high-street Monopoly owner. Alastair Barlow considers the implications of the collapse of Sir Philip Green’s Arcadia Group.

9th Dec 2020
Founder & Chief Dreamer flinder
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Retail outlets became a noose around Arcadia's neck
iStock_Dorothy Perkins & Burton_Roger Utting Photography

Sir Philip Green’s notoriety has risen in 20 years since he bought BHS for £200m and became a high-street retail player. He went on to assemble the biggest collection of properties on the board with his Arcadia Group.

This retail empare funded Green’s lavish lifestyle, including a £90m superyacht and £40m Gulfstream jet. But that all came to an abrupt end last week when Arcadia went into administration.

The cataclysmic impact of national lockdowns makes it hard to track the high-street administrations, which are accelerating as high-street footfalls dwindle. So, while Arcadia is the latest retail failure, it’s likely to be superseded by another within days.

Debenhams, which was put into administration earlier this year, looks to have no future as administrators are struggling to find a buyer. Arcadia is the largest concession holder within Debenhams and accounted for about £75m of sales, which will not help its cause. That’s another 12,000 high-street jobs at risk.

    The empire grows

    How did Green become the owner of so many high-street brands, knighted and so (in)famous?
    • He left school at 16 with no qualifications and learnt his trade in shoe retailing.
    • 1970–1980s: He bought excess and liquidated stock, selling to market-stall holders and then running two cut-price fashion boutiques in Mayfair.
    • 1985: He bought distressed retail chain Bonanza Jeans using bank debt. He also bought one of its distressed customers, Jean Jeanie, and sold the whole chain to Lee Copper for £7m.
    • 1988: He invested in and was hired as head of Amber Day, a listed retailer.
    • 1999: Green worked with the Barclay brothers to buy Sears, the owner of the Miss Selfridge, Wallis and Warehouse brands.
    • 2000: He bought BHS for £200m, supported by a network of investment bank contacts.
    • 2002: Taveta Investments (technically owned by his wife) bought the Arcadia Group for £770m.

    So, what can we learn from this latest high-profile fall? In summary, it’s about staying relevant, but here’s the detail…

    Customer distribution model

    Know your customer is something I always talk about; Gymshark did this very well with the help of Instagram influencers. Customer preferences have and are continuing to evolve.

    If you search Arcadia brands Topshop and Miss Selfridge on social media and compare them to Boohoo’s brands of Boohoo, Nastygal and Pretty Little Thing they come up short, very short. In fact, they have less than half the social following (Instagram: 25m v 11m) and similar interaction ratios.

    So, they’re very much behind the curve in their online presence and presumably that also relates to their share of the online market. Customers no longer buy as much from physical stores as they did and certainly not in 2020.

    Instagram follower comparison Arcadia vs Boohoo
    Source: Instagram accounts for Boohoo (Pretty Little Things, Boohoo, Nastygal) and Arcadia (Miss Selfridge, TopShop)

    Source: Instagram accounts for Boohoo (Pretty Little Things, Boohoo, Nastygal) and Arcadia (Miss Selfridge, TopShop)

    The revenue trends for both Arcadia and Boohoo show which group knows their customer better (see below). Arcadia’s annual accounts are only filed up to 2018, but you can see the direction of travel. It doesn’t take too much imagination to see that while Arcadia’s revenues are reducing, Boohoo’s are increasing significantly and are on track to overtake Green’s ailing brand.

    Arcadia vs Boohoo revenue trends
    Source: Arcadia and Boohoo annual accounts

    Source: Arcadia and Boohoo annual accounts

    Arcadia did not evolve quickly enough to be seen where its customers are hanging out, and how and where they want to buy.

    Store portfolio

    In Sir Philip’s heyday in the early 2000s, his portfolio included BHS, Topshop, Topman, Dorothy Perkins, Burton, Wallis, Evans and Miss Selfridge. He even tried to buy M&S. This was largely before ecommerce took off and in a year when online has pretty much been the only way to shop, he moved with the times.

    The large store network and department store concessions have hampered Arcadia’s ability to adapt. The group had to make a £186m lease provision that reduced the profitability of its retail stores. Even before the lockdown came into effect, it was unable to reduce store costs at the same rate as the decline in retail sales.

    The chart below shows that while revenue per FTE increased over time, indicating a greater proportion of revenue from online sales. Yet revenue per outlet has fallen – showing how the group struggled to reduce outlets numbers as physical demand dropped.

    Arcadia and Boohoo annual accounts
    Source: Arcadia and Boohoo annual accounts

    Source: Arcadia annual accounts

    Such was the noose the store network put Arcadia’s neck, the group went through a process of seven CVAs in in June 2019 to try to give itself some breathing room and restructure its lease commitments.

    Supply chain model

    While online competitor Boohoo has faced questions over the ethics of its fast-fashion approach, the online brand captured the demographic Topshop is targeting.

    Boohoo developd a more modern and quick-to-market supply chain by sourcing fashion closer to home. It can respond more quickly to young shoppers’ desires and react to better accelerating fashion changes. Arcadia continued with the same supply chain approach for the past decade, buying in depth from the far east on long lead times.

    Milking the cow

    Over the years millions have been invested into upgrading Arcadia, but has it been enough? Evidently, the answer is no. The brands could not keep up with the times, but neither could the pension fund.

    BHS, which was outside the Arcadia Group but part of the Taveta Investments parent group owned by Green’s wife, had a pension deficit of £571m when it went into liquidation.

    As many will remember, BHS was sold for £1 to a Dominic Chappell in 2015. Chappell subsequently extracted £2m from BHS and was later jailed for tax evasion. Green reportedly took out more than £500m from BHS across dividends, rent and loan interest.

    The point here is that many believe Green off-loaded BHS to avoid plugging the pension deficit. He denied this allegation and later reached a deal with the Pensions Regulator to inject £363m into that scheme. The Arcadia Group also has a large pension deficit, reportedly to the value of £350m.

    In 2005, Green paid his family £1.2bn (yes b for billion), which was funded by a loan taken out by Arcadia. This move reduced Arcadia's corporation tax as interest charges on the loan were offset against profits. Arcadia's shareholder is Green’s wife Tina, not Green himself. She is resident in Monaco and so paid no tax on the dividend. In addition to the huge dividend, the family took more than £350m in interest, rent and property charges from the Arcadia Group.

    While 2005 was a big pay day for the Greens, the group has suffered from a lack of investment ever since. Is Philip Green’s modus operandi, it seems, is now becoming clear: buy low, extract as much value as possible and leave the carcass for someone else.

    Portfolio assessment: Relevance of brands

    Private company accounts don't tell us much about segmented performance; geographical destination isn’t that interesting when we want to see physical retail vs online retail. Equally, brand performance would be extremely interesting to see – how are individual brands performing?

    The Arcadia portfolio contains some brands that are likely outdated. I haven’t been down a high-street in quite a while, but I can’t imagine the likes of Dorothy Perkins and Evans are that popular. Equally I can’t remember the last time I saw a Burton on the high-street.

    Did strong brands like Topshop and Miss Selfridge miss out on investment as Arcadia tried to prop up under-performing ones?

    Alastair's Arcadia portfolio assessment

    Arcadia Group brands assessed by flinder's Alastair Barlow


    Overall, it appears that Green milked Arcadia over the past decade and it’s running dry with very little innovation, not enough investment and an obsolete operating model from supply-chain to customer strategy. On the BCG matrix above, he has plenty of dogs in his portfolio but no stars.

    With this as the strategy, it’s no real surprise others are taking market share. Of course, Arcadia has been a victim of lockdown, but the fall of the high-street has been staring the group in the face for a while. Covid-19 only accelerated what was seemingly inevitable anyway. It’s a lesson not to lounge on your superyacht and to continually reassess your strategy. Boohoo could be interested in some of the brands, such as Topshop or even Topman, but this will likely remove most, if not all, of Arcadia’s high-street presence.

    And what of Green himself? Well, there is currently a petition going around to strip him of his knighthood (again). Either way, you do have to wonder if he was ever deserving of it. Is he a creator or an exploiter? The Arcadia pension is currently in deficit, so it will be interesting to see if he dips his hand in his pocket for this one too.

    Replies (3)

    Please login or register to join the discussion.

    By Mr J Andrews
    10th Dec 2020 09:59

    What a well written article. Sadly it's not Goodnight but more Nightmares for the now countless high street jobbers adding to the woes of cheated pensioners. At least Chappell has been banged up. Just a shame HMRC haven't delved deeper.
    One omission from the empire growth is who awarded the knighthood. No less than Anthony Charles Lynton Blair. Say no more.

    Thanks (4)
    Replying to Mr J Andrews:
    By Michaelr205
    10th Dec 2020 10:10

    "One omission from the empire growth is who awarded the knighthood. No less than Anthony Charles Lynton Blair. Say no more"
    What a pathetic comment! Apart from mocking Blair for a name he was given but didn't choose we could go through the list of honours given to all sorts of "underserving" by any government of any political persuasion over the years. Maybe you could ask who gave a knighthood to Anthony Blunt?
    This is an accountancy page, it would be better to avoid politics unless relevant.

    Thanks (2)
    Replying to Mr J Andrews:
    By Alastair Barlow
    10th Dec 2020 19:20

    Thanks for reading and thanks for the comments. I totally agree how sad it is for the staff.

    Thanks (1)