Arcadia CVA: an analyst’s view. “It’s a temporary respite.”

Topshop Arcadia

Fashion group Arcadia managed to pull the rabbit out of the hat and fend off going into administration Wednesday following a vote backing a complicated support plan that included retail property landlords cutting their rents by 50%.

The plan required at least 75% of the unsecured creditors to agree to company voluntary arrangements, an insolvency procedure that allows the company with debt problems to agree directly with creditors on the terms to repay their debt.

Arcadia first tabled the proposal to its landlords, including shopping centre owner Intu, on 5 June but the vote had to be postponed on clear signals that most landlords were not interested in backing it. A concession from Sir Philip Green and his wife Lady Green, the official owner of the group, reimbursing some of the landlords for their rent cuts seems to have turned the mood around sufficiently for the required three quarters to vote in favour of the deal.

Had the company not succeeded its demise would have meant a potential loss of up to 18,000 jobs globally and an uncertain future for its brands Topshop, Dorothy Perkins, Miss Selfridge, Wallis and Burton.

The vote has bought Arcadia only a temporary respite as the key problems leading to the company’s troubles, high outgoings in the form of rent and wage costs in an environment of declining shop sales still are still there.

The overall shopping mood in Britain remains somewhat dampened not only by the bad weather but more so by a political backdrop that is in a flux and a lack of clarity over Brexit. A deeper and more longer term problem is that online shopping continues to gain over high street sales making traditional shop floor sales almost a slightly outdated model that requires a bigger rethink.

Although Arcadia has already said it would restructure the business to cut its cost base and focus more on digital and wholesale channels the changes will have to be fairly substantial for the company to last under the current circumstances. Over 20 stores will be closed straight away, 194 stores (of a total estate of 570) will remain in business but pay reduced rent.

It remains to be seen if this will be enough or if Topshop, Dorothy Perkins and Miss Selfridge will end up the same way as Debenhams, Patisserie Valerie, LK Bennet and Oddbins.

Fiona Cincotta
Fiona Cincotta

Fiona Cincotta is senior market analyst at www.cityindex.co.uk