Arcadia avoids collapse as landlords back rescue plan.
13/6/2019.
Sir Philip Green’s fashion empire lives to fight another day after it secured backing for its restructuring plan.
Arcadia managed to convince more than three-quarters of its unsecured creditors – made up of landlords, suppliers, and the Pensions Regulator – to vote for a series of company voluntary arrangements (CVAs), staving off administration.
However, the plan involves the closure of 50 stores and 1,000 job losses. Landlords remain dissatisfied while retail experts say Arcadia needs a thorough overhaul if it is to survive. Arcadia was advised on the restructuring by GCW and Deloitte.
The retail empire, which includes major UK chains such as Topshop, Miss Selfridge, Dorothy Perkins, Burton and Wallis, managed to secure the support of 75% of its creditors for seven Company Voluntary Arrangements, despite resistance from landlords over “unfair” rent reductions.
Topshop chop stopped – the retail empire lives to sell another day
Arcadia will live to sell another day after surviving a meeting of its creditors on June 12th—but it comes at a cost.
Sir Philip Green, the head of the retail empire, secured crucial rent reductions from landlords, but Arcadia will also be closing scores of stores.
It is more grim news for Britain’s high street retail sector. Bricks-and-mortar retailing has been hit badly by internet shopping and falling demand. But Arcadia, with brands including Topshop and Miss Selfridge, has been performing especially poorly for a decade or so. Its share of the British clothing market has slowly declined. One of Sir Philip’s previous stores, BHS, went acrimoniously bust in 2016.
Unsurprisingly, some of the landlords had objected to giving Arcadia rent reductions, especially Intu, which owns several big shopping centres. But in the absence of a deal, Arcadia could have gone into administration, putting 18,000 jobs at risk.
Landlords including Hammerson, British Land and Crown Estates voted in favour of the deals to keep the retail network afloat, which will see store rents cut by 25-50% for some.
Major shareholder and landlord Intu however rejected the deals, stating: “We firmly believe that the terms of the Arcadia CVA are unfair to our full rent paying tenants and not in the interests of any other stakeholders.”
Welcoming the deal’s approval, Arcadia CEO Ian Grabiner said the rescue plan would provide “the right structure to reduce our cost base and create a stable financial platform.”
The group must now use this breathing space to turn the business around.
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Retailer’s position remains precarious
The announcement marks positive news for the embattled Arcadia Group, which has faced significant financial struggles in recent years as high street businesses lose customers to online retailers.
Sales at Arcadia’s stores dropped by 9% in 2018-19, with profits this year projected at just £30m – down from £219m in 2017.
Industry analysts note that the “threat of administration” has only momentarily been avoided however, with the business still tasked with overcoming the challenges posed by steep cost pressures and waning consumer footfall amid the ongoing UK high street crisis.
Commercial property expert Joanne Fearnley warns: “As we are seeing with other retailers who have followed the same route, time will tell whether or not this is a temporary saving,” adding:
“It may be that the dent to the confidence of landlords will result in them putting in place contingency plans on the prime locations in particular, so that the demise of Arcadia becomes inevitable overtime.”
Retail Economics CEO Richard Lim echoed this sentiment, warning of a “huge battle ahead” for Arcadia to adapt to shifting trading conditions in the UK retail sector.
“It’s not just fewer stores that are needed to ensure Arcadia’s long-term survival. It ultimately needs a leaner business model, including less staff and fewer brands, as well as investment into its identity and customer experience to fend off online and value retailers,” said Mr. Lim.
Select secures CVA amid “adverse” conditions for high street
Elsewhere last week, a CVA package proposed by Select won support from 87% of the retailer’s landlords and creditors, with the company promising changes to its “operational costs and structures.”
Select, which operates 169 stores across the UK, fell into administration last month, with administrators Quantuma proposing a CVA to rescue the business.
Joint administrator Andrew Andronikou thanked creditors for their support, acknowledging that the company required significant restructuring as a result of the “many challenges in the UK retail sector which ha[ve] adversely affected the high street.”
Update – 17th June 2019. American landlords sue Green over closures
A group of American landlords have launched a legal challenge against Topshop’s bankruptcy in the US arguing that Arcadia “manipulated and gerrymandered” the CVA process in the UK to effect the “complete forfeiture and deprivation” of their rights.
Five landlords, led by the property giant Vornado, are seeking over £100m and intend to challenge the CVA in the British courts. Arcadia’s adviser, Deloitte, has argued that the CVA is irrelevant to the American operations.