Arcadia: what went wrong and what's next?

Administrators are reported to be waiting in the wings at Sir Philip Green's Arcadia and may be appointed as early as next week. If it does come to pass (and sources say it may not yet happen) it would be a terrible tragedy for its 15,000 staff but it would also be one of the most exciting opportunities for its rivals. (Boohoo and Frasers will no doubt be sharpening their pencils and dusting off their tape measures as we sit here.)

Sir Philip Green acquired Arcadia in 2002 through his family firm Taveta, which is based out of Monaco. At the time Sir Philip (who was then plain, old Mr Green) was known as being a gifted trader and he ran a lean operation keeping a portfolio of brands (most of which had already seen better days) not only afloat, but growing.

But there was one brand among this somewhat tired portfolio that was prized above all the others: Topshop. The trend-led young fashion brand – which when Green bought it was headed by Jane Shepherdson who was known as one of the most powerful and talented women on the high street – set the standard for what high street fashion could be.

It supported young fashion designers, sponsoring the British Fashion Council's NEWGEN initiative, and went on to show at London Fashion Week in its own right proving to be one of the event's hottest, and starriest, events. Sir Philip himself was always front row, flanked by glamorous celebrities and often as not Kate Moss, who designed a best-selling collection for the brand (it was the signing of Kate Moss that was ultimately to lead to the exit of Jane Shepherdson, who went off to carry out a buyout of Whistles and now chairs fashion rental business MyWardrobeHQ).

However it was clear by the late 2000s, as the financial crash dawned, that Sir Philip's lack of investment in the brands (outside of flashy Fashion Week shows, celebrity partnerships and Topshop's flagships) was taking its toll. It was also losing ground to upstart online retailers such as Boohoo and ASOS. Word has it Sir Philip made several informal attempts to buy the latter in its early days but his offers were audacious at best and ASOS was listed, meaning its shareholders were unlikely to have approved them had they been formalised.

Sir Philip Green

Things got worse when Sir Philip offloaded the BHS department store, and its whacking great pension scheme deficit, to a known bankrupt in 2015 for just £1. It collapsed a year later and, while he was no longer with the business, Sir Philip was hauled in front of MPs to account for himself and had to hand over hundreds of millions to plug the pension fund's black hole in no small part because, if he didn't, he was likely to revert to plain, old Mr Green once more. (Read our in-depth look at Sir Philip's career and more on BHS here).

It didn't help that Sir Philip also became embroiled in his own #MeToo scandal in 2018 involving, strongly refuted, allegations of harassment of staff. That will not have gone down well with Topshop's young, female consumer base, particularly when they had more digitally savvy rivals to shop with.

Sofie Willmott, Content Head of Apparel at GlobalData, a leading data and analytics company, offers her view. “Arcadia’s stable of brands have lost relevance in recent years, with more appealing and innovative retailers that better target their shoppers, such as ASOS and the boohoo group, muscling their way in. Arcadia’s UK clothing market share has slumped 1.8 percentage points since 2015, to 2.7% in 2020, leaving it at the bottom of the top 10 UK clothing players, from fourth just five years ago, held back by its cumbersome store estate (despite a CVA in 2019) and controversial owner.

“With demand for clothing & footwear plummeting this year due to a lack of social occasions, clothing specialists have been hard hit but some of Arcadia’s more digitally savvy competitors have thrived, posting impressive results as spend has shifted online. Although Arcadia’s brands including Topshop, Burton and Dorothy Perkins have well established online propositions, the majority of their sales would still have been generated in stores and its digital channels will not have made up for the significant sales lost from store closures during lockdowns."

Yet, despite their struggles, if those brands did come on to the market, there's no question there would be interest. And analysts seem united in the view that Boohoo will be circling very closely. Boohoo's management team is strongly incentivised, via a bonus and share scheme, to pursue aggressive growth and it has publicly stated that it wants to create a global business with a portfolio of brands that is effectively an online equivalent of the likes of H&M Group and Inditex.

Boohoo's Mahmud Kamani

It has already snapped up high street brands Karen Millen, Oasis, Warehouse and Coast and turned them into online-only entities and it has a war chest of cash ready to pounce on any attractive opportunities that arise.

“Considering its high street brand acquisitions in the last few years and that it has openly stated that it is poised for a shopping spree as competitors struggle, the Boohoo group is likely to be interested in snapping up Topshop/Topman, to boost its portfolio. However, a deal with the Boohoo group is unlikely to include stores, bringing more bad news for high street locations and property owners, who will struggle to find other retailers that can fill this space," says Willmott.

Analyst Richard Hyman, agrees, though he believes Topshop could be siphoned off and sold separately from the rest of the portfolio, and that may or may not end up in Boohoo's hands.

"I think one needs to look at Arcadia in the round. Topshop remains a good brand and I am certain with some investment and the right leadership, it could make very good returns going forward. The other brands all peaked before PG [Sir Philip Green] acquired them. So he’s done really well to continue trading them, getting returns and providing employment for thousands.

"The 20 years of PG’s ownership have seen retail not just change but become vastly more complex. He was never big on strategy, or on investment in the future. Winning in retail today requires both. He ran a very lean operation which gave little wriggle room. When business turned down, there was nowhere to go.

"Topshop will be bought by someone. The rest will be acquired by, probably, Boohoo. They have the money and are desperate to be bigger. They’ll pay pence in the pound for stock, the names, websites and nothing else I expect!"

Frasers Group's Mike Ashley

It would also be wrong to write-off the possibility of Mike Ashley's Frasers Group taking a tilt at Topshop. Frasers, too, has cash and its boss has now assumed the unofficial mantle of "King of the High Street" from his one-time friend Sir Philip Green. Trouble is, Sir Philip and Ashley are said to no longer be on good terms and behind closed doors Ashley is reported to have accused Green of standing in the way of his bid to buy struggling department store chain Debenhams, in which Arcadia turns over around £100m in sales via concessions.

Sir Philip is said to have denied blocking Ashley's progress with Debenhams and he may not get any say (at least not officially) over who takes over his empire next. Ashley, at least, is more likely to want to keep some of its stores and you can never rule him out if there is an opportunity for an acquisition to be had.

But then you can never rule out Sir Philip Green either and until Arcadia does go down, there's no saying he won't pull something out of the bag himself.