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"Break up of Arcadia is best chance of survival" as its future still hangs in the balance

Lauretta Roberts
30 November 2020

A break up of Sir Philip Green's Arcadia is its best chance of survival, a leading analyst has said, as the fashion retail group's future still hangs in the balance this evening.

The Topshop to Burton group is teetering on the brink administration after talks with lenders to secure emergency funding failed and an offer of a secured £50m lifeline loan from Mike Ashley's Frasers Group was declined today.

According to Chloe Collins, Senior Retail Analyst at GlobalData, a break-up of the group would be the best way forward with numerous buyers said to be in the frame.

Despite its loan offer being rebuffed Frasers Group had confirmed it would like to be part of any sale process of the group, but other big names such as Boohoo Group, Next and Marks & Spencer could be interested in certain brands, despite the fact that many have been neglected in recent years with all the focus having been on the prize asset Topshop.

Arcadia’s brands have been losing relevance for years and have suffered from a lack of innovation and investment - especially in digital, with this weakness being particularly exposed during the pandemic. The group’s downfall has been a long time coming, and the best chance of survival for any of its brands is for them to be acquired separately, with each given the attention and investment needed to stand out in the competitive UK market," Collins said.

Collins believes that online giant Boohoo is the most likely to snap up Topshop and Topman, having already acquired Oasis and Warehouse out of liquidation at the beginning of the COVID-19 crisis. Boohoo's management is heavily incentivised to grow the group and the company has made no secret of its ambition to create an online equivalent of multi-brand global fashion groups, such as H&M Group and Inditex. However an acquisition by Boohoo would mean the end of its stores.

Says Collins: "The Boohoo Group is likely to be keen to snap [Topshop and Topman] up – Topman would really boost its menswear offer, which has always lagged behind boohoo’s women’s brands, and Topshop could benefit massively from boohoo’s social media prowess and influencer relationships. However, any deal involving Boohoo would most likely result in the closure of all stores, and these brands would be sorely missed from high streets. Miss Selfridge could be a good fit for Boohoo though, however it would need to be revived with a niche selling point to differentiate it from Boohoo’s other brands."

Dorothy Perkins and Burton would have the most appeal for buyers such as Marks & Spencer and Next. "[They] would have the most appeal among their target demographics. However, Burton’s ranges which mainly focus on formalwear have been largely redundant throughout the pandemic as consumers work from home and social events have been cancelled," Collins says.

The two brands which may struggle to attract attention, according to Collins, are Wallis and Evans given the former's focus on workwear and the increased competition faced by the latter from brands expanding their collections to include a plus-size offer.

Mike Ashley, however, is likely to play a pivotal role in the future of Arcadia and potentially that of Debenhams too. Arcadia is one of Debenhams's biggest concessionaires, turning over around £100m across its stores. As a result of Arcadia's news that it is close to appointing administrators, JD Sports has pulled back from its plan to acquire Debenhams until the issue of Arcadia's ownership is sorted.

This could push Debenhams, which has been in administration since the first UK lockdown, back into the path of Ashley. Ashley had made an offer for the firm but walked away claiming its administrators had not provided his company with sufficient information to make a full bid in the region of the £300m asking price.

Despite Ashley's loan offer being knocked back, his group is likely to be keen to land some of Arcadia's brands as well, meaning it is not inconceivable that Ashley ends up with both Debenhams and Arcadia. Analysts, however, doubt he would be keen to take on such a big challenge and the group may not have the cash as it has been spending already, upping its stake in Mulberry to 36% in recent weeks, as well as building up a stake in Hugo Boss.

In addition there is known to be tension between Mike Ashley and Sir Philip Green with the former having, behind closed doors, accused the latter of getting in his way of trying to secure Debenhams, something which Green is said to deny.

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