Asset stripping by its owner, years of brick-and-mortar meltdown, topped off by the Pandemic. Suppliers, landlords, and pensioners twist in the wind.
By Nick Corbishley, for WOLF STREET:
One of the UK’s largest brick-and-mortar fashion retailers, Arcadia, has crashed into administration, becoming the country’s biggest corporate casualty of the Pandemic so far, according to its administrator Deloitte. But it had already been weakened by years of brick-and-mortar meltdown and by asset stripping by its owners.
Arcadia employs 13,000 workers and runs 422 stores in the UK as well as 22 outlets overseas, a far cry from the more than 2,000 outlets it operated globally in 2004 when current owner, Philip Green, took over the company.
Arcadia’s brands include such retail stalwarts as Topshop, Topman, Dorothy Perkins and Burton. Since the group has opted for a “light-touch” administration, those brands will be able to continue operating their stores and ecommerce sites throughout the process, while the firm is shielded from creditors’ demands. A buyer is sought for all or parts of the company.
Because Arcadia is privately owned, it does not have to disclose publicly the state of its accounts and how much debt it owes its creditors, including its lenders. According to multiple reports, it owes over half a billion pounds to its pension fund members and suppliers, much of which will now go unpaid.
On announcing its collapse on Monday evening, Arcadia became the latest in a long line of once-ubiquitous retail chains — BHS, which was also owned by Green, Banana Republic, Barratts, JJB Sports, Comet, C&A, Dixons, Debenhams…– that have failed to adapt to the brutal conditions that prevail on the UK high street, including rampant rental inflation, soaring business rates, and the unstoppable rise of e-commerce.
In a press release, Arcadia pinned much of the blame for its bankruptcy on the lockdowns and other restrictions: “The forced closure of our stores for sustained periods as a result of the Covid-19 pandemic has had a material impact on trading across our businesses.”
But the firm’s fortunes began souring long before the Pandemic. Some date the start of the decline to 2005, when Green paid a whopping £1.2 billion tax-free dividend to Arcadia’s Monaco-based holding group Taveta, whose sole director is Green’s wife, Tina Green. The dividend was the biggest paycheck in British corporate history and was more than three times the company’s annual operating profits that year.
Since 2012, Taveta’s annual operating profits have been falling. The decline accelerated from 2015, as the firm’s biggest brands faced intensifying competition from online-only fashion retailers such as Asos, Boohoo and Pretty Little Thing.
Instead of investing in online channels in the 2000s, Arcadia was paying outsized dividends to Green’s family — a form of asset stripping. Five years ago, Arcadia was the fourth-largest clothing business in the U.K.; today, outrun by ecommerce retailers, it accounts for a meager 2.7% of the market, according to research company GlobalData.
By 2017, the group’s annual profits had morphed into a pretax loss of £137 million. In 2018, the losses had grown to £177 million. The group’s biggest brand, Topshop, posted a loss of over £500 million.
More than ten buyers have expressed an interest in purchasing Topshop out of administration, including online specialist Boohoo, Mike Ashley’s Frasers Group, formerly known as Sports Direct, and a number of private equity players, reports The Guardian. Jane Shepherdson, a former Arcadia director who is credited with turning Topshop into a global brand, says she expects an online retailer to buy the brand and close most of the stores.
“It’s incredibly sad… the worst thing is for all of the store staff, which are mostly women who are going to be unemployed. The supply chains are also going to take a massive hit. I imagine that orders will start to be cancelled very, very shortly.”
Arcadia’s suppliers are owed an estimated £250 million in unpaid invoices. The group’s retail landlords, many of whom were already in deep crisis mode, could also be hit hard. Affected listed landlords include British Land (circa 20 Arcadia stores), Hammerson (15 stores), and Landsec (10 stores),
The department store group Debenhams, which is going through its second light-touch administration in less than two years, is also exposed, since Arcadia is the biggest concession owner at its 122 UK stores. Debenhams was in rescue talks with its last remaining bidder, JD Sports, which pulled out of the talks as soon as it heard of Arcadia’s demise.
Pensioners will also feel the pain. While Green was exceptionally generous with the dividends he paid to himself and his wife, he left Arcadia’s pension fund with a £350 million budget shortfall. Even after the UK’s industry-backed pensions lifeboat takes over the reins, members of Arcadia’s pension plan who have not reached the plan’s normal retirement age at the administration date could lose 10% of their benefits.
This is not the first time Green has left a company pension pot empty. During his ownership of the now-defunct department store BHS, he stripped hundreds of millions of pounds out of the chain before selling it, for the nominal price of £1, to serial bankrupt Dominic Chappell, who is now in jail on tax evasion charges. BHS collapsed a year later, under the weight of a £571 million black hole in its pension fund, and Green was eventually forced to repay £363 million to BHS’s pension-fund members. By Nick Corbishley, for WOLF STREET.
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Personally, I would hope that Philip Green be given a “very cruel and unusual” punishment for his misdeeds.
10 years of forced labor above the Artic Circle would be appropriate.
The realist in me recognizes that will never happen. Perhaps a Knighthood is in order…
But I’m not terribly fond of these asset stripping vampires…
Well, he is definitely the smartest asset stripping vampire I’ve heard of as he didn’t even have to pay any taxes!
Makes the Taj caper look like a smaller time rip.
taking care of covid patients would be apropo
Brian, Bernie Madoff went to prison because he cheated mainly the rich. There has been no punishment for the bankers and other fraudsters since the Great Recession in 2009, only bailouts such that moral hazard has escalated to satanic levels, all in the name of free markets and deregulation.
He already has a knighthood. Narrowly avoided losing it a few years ago: settling the BHS pension fiasco was probably one of the things that saved his neck. Hopefully he gets the chop now.
How does this not turn into a total collapse?both sides of the pond?
Agreed, this whole thing feels like a game of jenga.
Printing machine
Printing just delays the ineviteable there Y
With friends like Green and his bankers, Brexit will be a resounding success!!!
So not one fraud or GAAP law violated and while not funding mandatory obligations like the pensions?
This stuff will never end until there are prison sentences.
“when Green paid a whopping £1.2 billion tax-free dividend to Arcadia’s Monaco-based holding group Taveta, whose sole director is Green’s wife, Tina Green. The dividend was the biggest paycheck in British corporate history and was more than three times the company’s annual operating profits that year.”
“She expects an online retailer to buy the brand and close most of the stores.”
The cutting to the bone.
“Pensioners will also feel the pain.”
As a recent retiree, these sorts of statements give me the willies. I have developed a sincere sense that retirement is fragile. You play by the rules, but the big kids upstairs don’t….
I might need to get a job, seriously.
Hope you didn’t vote for Thatcher. The company law and stock market De-regulation that started with her only ever receives raving reviews. Not so smart now though.
Don’t know whether herr grunnen is looking for new job but frau grunnen should be cooking on gas – she had set up what every bored housewife does, a design studio, designing the crassest designs for the crassest customers from the megamoney swamp.
Way of the rich and powerful – yes, sickening.
Strip Phillip Green of his knighthood that the Labour Prime Minister Tony Blair recommended Queen Elizabeth II to give him some years ago for “ services to the British retail sector”.
Green is and always has been a chancer and an asset stripper. The £ 1.2 billion dividend paid to his wife was funded from a bank loan, repayable over seven and a half years from future projected Arcadia profits.
This means that the loan should have been repaid by 2012/2013. Was it?
Maybe a friendly clause allowed deferral of loan repayment, enabling the asset strippers to go on a property acquisition binge in the last 10 years. At least in U.K. that is.
Yes, love the irony that the type of people the establishment think of as being one of their own, deserving of knighthoods, the kind of people they think we should all aspire to be like etc, are little more than asset strippers, pension raiders, needing to live in tax havens. Such nice people, he said sarcastically.
The Commons recommended it be stripped off him after he stripped BHS a few years back. But it wasn’t a binding resolution, so hopefully this latest mess prompts somebody in Government to actually give it a shove.
It’s called captains of industry
“he left Arcadia’s pension fund with a £350 million budget shortfall”.
How much of that went into the £1.2b dividend.
Just like captain Maxwell, Ghislaine’s dad, from the good old days.
Seems like a trend among the parasitic class
What is a brand that does not own the manufacturing of its products, and lacks IP?
He should change his name to Grunberg and reinvent himself.
This is pure thuggery. Where are lynch mobs when you need them?
Nah, it’s all part of Making The UK Great Again!!!
Part 2: Make one half of the poor to kill the other half.
Didn’t Arcadia have a rent reduction last year
I think I saw this in the movie greed. His name was greedy McCready.
Capitalism at its worst – Sir Phillip Green.
Sad part is with covid this news will be forgotten.
These 13,000 employees deserve better from their employer.
Yes he did some more than questionable things but seriously some of the MP’s demanding any type of action really is Pot calling Kettle Black big time. If only they made public and published a list of just how many MP’s pay little or no tax whilst having great wealth in off shore Tax Haven trusts that would shock and wake up some people as its not just Tories.
Sorry to say but they days of me believing in Justice, Fairness and Humanity are long gone and I mean by decades. The whole system is rigged and has been forever and its a very small club that most of us aren’t in it or ever likely to be.
I don’t know anybody who is shocked by any of this.
We’ve seen it all before and the faux outrage from journalists is putrid.
Will 2021 be any better?
There is a good article on Sir Philip Green at Wikipedia.
I suggest all the retirees of all Phillip green’s various underfunded pension schemes move to Monaco and squat in the streets.