Arcadia Collapse: What went wrong?

Once a titan of UK retail, the collapse of Arcadia 10 years ago would have come as a shock to everyone on the high street, whereas in 2020, the road to its demise has been mapped for some time and has now finally reached its end - with its rivals desperately waiting to peck at its carcass. The ongoing pandemic has been the final nail in the coffin for the group, but a series of scandals and mismanagement have weakened it along the way. The history of Arcadia can be traced as far back as 1903, when the Cross-Tailoring Company was founded by Montague Burton. The group would later evolve into the Burton Group, and acquire what we now know as Topshop. A further evolution saw the company relaunch as Arcadia Group, though Sir Phillip Green did not enter the scene until 2002. Hot off a deal that saw him acquire and break up retail chain Sears to the tune of a £300m profit and his acquisition of BHS, his reign at Arcadia began in 2002 when Taveta Ltd, owned by his family, acquired the group, which saw it become a private company and delisted from the London Stock Exchange. The takeover was finalised in a £850m deal, with full and private ownership of the group going to Sir Green’s wife, Tina. And indeed things yet again looked bright for the retail tycoon, as buoyed by its leading Topman and Topshop brands, Arcadia continued to increase its high street presence. This was topped off by Green’s controversial decision in 2005, just three years after acquiring the business, to pay his family a £1.2bn tax-free dividend. This would be one of many controversies to plague Sir Phillip Green during his time at the helm of Arcadia. He would later attract criticism when he sold the ailing BHS chain to serial bankrupt Dominic Chappell for £1 - the business collapsed only a year later, leaving a £571m pension deficit for its employees. Green was later ordered to give the failed business £353m to help plug the pension hole, but only after he faced an outcry over his actions. Despite the seemingly endless controversies, alongside accusations of bullying behaviour and sexual harassment on Green’s part, the business continued to reign supreme in the retail world. This was in part due to the continued success of Topshop, which was bolstered by an investment from LA-based private equity firm Leonard Green and Partners, which saw the retail chain’s value total £1.4bn. The retail tycoon and his empire appeared to be untouchable, despite ongoing criticisms of the man and his management. That was, until, 2019, which until now was something of an annus horribilis for the group. Reports that the group needed a restructure first surfaced in March, and discussions with creditors and landlords saw the business go on to close 23 sites later that year. At the time, CEO Ian Grabiner said that the decision was made “against a backdrop of challenging retail headwinds, changing consumer habits and ever-increasing online competition”. However, a CVA was only secured when Arcadia reached an agreement with the trustees of the pension schemes, the Pensions Regulator and the Pension Protection Fund, which saw Arcadia reduce its deficit repair contributions from £50m to £25m per year, for three years, with security granted to the value of £210m over certain assets of the group. A CVA did not end the trouble for the group, which was, at this point, appearing less and less invincible. Later that year, a group of US landlords filed a legal challenge against Arcadia in light of CVAs that saw its US subsidiary enter administration, and resulted in the closure of all 11 US Topshop stores. Off the back of closures, restructures and more legal battles, 2020 then hit. Alongside the rest of the industry, Arcadia failed to escape the pandemic unscathed. This led to the business scrambling for £50m in funding earlier this year in a bid to prop it up after it furloughed 14,500 employees and closed 550 sites amid lockdown. Some 500 jobs were later axed at its head office, and reports later surfaced that Arcadia had entered “urgent” borrowing talks in a bid to secure funding and “aid its survival prospects”. At the time, reports suggested a failure to secure the emergency funding could “raise renewed doubts about whether Sir Philip’s empire can survive the coronavirus pandemic”. That brings us to November 2020, and the news that this once reigning empire has collapsed into administration, taking thousands of jobs with it. It remains to be seen what, if anything, will be salvaged by potential buyers - It looks likely that Topshop may be snapped up by retail rivals, but the collapse will lead to inevitable losses along the way. Too slow to adapt Arguably both Green’s and the Arcadia Group’s ‘fatal flaw’ was that it was often too slow to adapt to the market around it. This is perhaps highlighted best of all by its reluctance to fully embrace e-commerce. Instead of getting ahead of the game, Green is thought to have been discouraged from pursuing Arcadia’s online operations by the heavy investment needed to establish an effective supply chain. Instead, it allowed competitors such as Asos and Boohoo to eat into its vital market share of young womenswear and menswear consumers as they increasingly shifted their habits to online shopping. As Cameron Gunn, co-founder and senior partner of business advisory firm ReSolve, comments: “Arcadia has had well-publicised financial struggles and utilised seven CVAs in late 2019 to help it manage its debt burden. It was at this time it announced it would be focusing on digital, which was definitely the right thing to do.” “Digital is incredibly important for retailers. What we have seen in the past several months is that the ones that have a strong online presence and know how to engage online with their customers are doing much better than those that underestimated the power of digital and neglected to invest in it. “In the case of Arcadia it may have been too little, too late with the likes of Boohoo, Asos and other online-only brands already eating up its market share.” While Arcadia’s collapse may signify the end of Green’s retailing career as ‘king of the high street’, it may also signify the final adaptation of this type of retailing. A high street where emphasis is not placed on traditional means, such as price or real estate, but one that places being ahead of the curve of the consumer’s needs at the forefront. As retail expert Dr Gordon Fletcher, of the University of Salford Business School explains, Arcadia is “personalised around its chairman” and is a “textbook case study” into the impact that different styles of leadership and management can have on a business. “As a private company the focus appears to have been on the short term by reaping of dividends during profitable periods with no investment back into the brands themselves. Consumers do increasingly expect conversations and interaction with the brands that they want. “If that investment has not been made to let that conversation happen then loyal consumers will look elsewhere. Arcadia and its brands are now paying the price for this lack of focus on the consumer and its ability to keep pace with the changing expectations of retail.”

Arcadia Collapse: What went wrong?

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