Arcadia lifeline leaves Green looking off colour

Topshop boss Philip Green once had to apologise to the Irish. The brash retail magnate had suggested to the Guardian that the Irish were illiterate. "He can't read English. Mind you, he is a f***ing Irishman," he said of the paper's then financial editor Paul Murphy (born and raised in Britain just like Green).

The remark was made "in the heat of the moment", he assured after a boycott threat. "Some of my best friends are Irish – Michael Smurfit, Dermot Desmond, JP McManus."

Green is fond of heated moments. Things are either going brilliantly for him, or they are on the verge of blowing up in spectacular fashion. In 2019, it’s the latter.

Unlike those best Irish friends, the pugnacious Green is no longer a billionaire by the Sunday Times Rich List's count, while his debt-stricken clothing empire Arcadia Group has spent the last few months trying to pull off a painful restructuring that saw it clash horribly with its landlords.

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On Wednesday evening, headlines declared that Arcadia had been awarded a “lifeline”. After a lengthy private meeting with suppliers and landlords, the company secured the 75 per cent backing it needed for a string of company voluntary arrangements (CVAs). If it hadn’t done so, “all bets would have been off”, as one retail insider put it.

Irish outlets

The deals struck allow for the breathing space of rent cuts, averting the possibility of Arcadia sliding into the UK insolvency process known as administration. That event would have put 18,000 jobs at risk and likely had knock-on effects for four Irish subsidiaries that employ as many as 1,000 people. But it was no day of triumph for Arcadia.

Some 23 Arcadia outlets, including six in the Republic, recently listed for closure are now expected to do so, while a further 25 Miss Selfridge and Evans stores, unnamed, will be restructured out of existence.

Retail union Mandate says about 100 employees may be made redundant at the six Irish outlets named. They are Evans/Dorothy Perkins in Cork, Miss Selfridge in Galway and four Dublin shops: Liffey Valley’s Wallis, Evans/Wallis on Henry Street, the large Topshop on St Stephen’s Green (which also contains Miss Selfridge) and the Topshop/Topman in Jervis Shopping Centre.

There are hopes that some staff can be redeployed to other Arcadia outlets. But the longer-term risk is that more will close. During the course of its fractious confrontation with its landlords, Arcadia reportedly observed it only needed a "critical mass" of 300 stores in the UK and Ireland, not the current 566.

Today, Arcadia is an important stitch in the fabric of Irish retail. Recession saw it fray at the edges where others disintegrated entirely. It has about 110 outlets here, though about 80 of these are small concessions, overwhelmingly located in two department store chains: Debenhams and Irish-owned Shaws.

The biggest vehicle, Topshop/Topman, had Irish revenue of £26 million (€29 million) in the 12 months to the end of August 2017. Dorothy Perkins, Burton and Evans collectively took in £20 million through Arcadia Group Multiples (Ireland), while Wallis and Miss Selfridge had revenue of £11.5 million and £4.7 million respectively.

Turnover rose at all of these Irish subsidiaries in 2017, though only by a sluggish 2 per cent at Topshop/Topman. Miss Selfridge Retail (Ireland) was the only Irish company vehicle not to make a profit. But these accounts also confirm that Arcadia’s influence has waned here just as it has in the UK: the combined Irish turnover of £62.7 million is down 23 per cent on what these same brands took in at the tills nine years earlier.

The only standalone Topshops left in the Republic when the two Dublin shops disappear will be in Blanchardstown Centre, Athlone Town Centre and Galway city centre. And when Galway's Miss Selfridge closes, the Miss Selfridge brand will exist here only in the form of concessions.

As CVAs don't apply under Irish insolvency law, there will be no joint negotiation on rent reductions, unless perhaps the company vehicles are placed in examinership

The retrenchment may not happen overnight. The leases on at least two Dublin outlets due to close were either coming to an end anyway in 2020 or approaching a break option, meaning landlords were prepared for a possible exit. As CVAs don’t apply under Irish insolvency law, there will be no joint negotiation on rent reductions, unless perhaps the company vehicles are placed in examinership.

Negotiations with landlords will instead happen on a one-by-one basis, one retail property expert indicated. While Arcadia is understood to have sent notification of the intention to close to at least some of the letting managers involved, the six stores were still trading yesterday. At the Jervis Street Topshop, a sprinkle of morning shoppers were merrily browsing its array of this summer’s button-down dresses, zebra prints and saffron yellow tops.

Green, in a much-bleeped interview with BBC Radio 4, insisted that Arcadia was never on the brink of collapse. But both its future ability to thrive and his own business prowess seem much less assured than they did in the early years of the millennium.

In 2002, the year before his “illiterate” outburst to the Guardian, Green was in a party mood. Retail success had led him to a point where he could bullishly take over then publicly quoted fashion empire Arcadia Group with the help of its biggest shareholder, Icelandic investment group Baugur. This went nicely with the BHS department store he had picked up in 2000.

Tax efficiency

But the "king of the high street" didn't actually own Arcadia. It belonged, and still belongs, to his wife. In an example of tax efficiency at its most naked, the vehicle used to buy the group was owned by Jersey-registered Taveta Ltd, the only director of which was Monaco-residing Tina Green.

By the time the Greens rocked up, Arcadia was already finding favour with Irish shoppers. Like other British womenswear retailers, it had expanded with a generation of suburban and regional shopping centres, serving the swell of younger Generation Xers and older millennials.

In the mid-1990s, Miss Selfridge outlets such as those in the Square, Tallaght, and on Dublin's Henry Street supplied post-grunge daywear and underage-disco fashion to young girls who, like many young girls before them, didn't want to shop where their mothers shopped. Wallis had a more grown-up vibe, while Evans was that rare thing: a retailer that catered to fashion-conscious plus-size women.

But by 2002, it was Topshop that was in the ascendant. The chain became Arcadia’s “crown jewel” as Green embarked on a gleeful and seemingly sure-footed expansion across Britain, Ireland and the world.

Its style heyday came in 2005, when it began showcasing its clothes at London Fashion Week. Years later, Green enjoyed posing for publicity photos with Kate Moss after the supermodel collaborated on a much-hyped, queued-for Topshop range. But the industry always credited somebody else for its fashion cachet: Jane Shepherdson, brand director from the pre-Green days of 1998 until late 2006.

Shepherdson took Topshop from the minimalist 1990s to the crazier fast-fashion of the Noughties, replete with patterned day-dresses, ambitious silhouettes, eye-drawing palettes and eclectic shoes.

After her departure, Topshop lost its flair. It rightly attempted to ride the "bodycon" and athleisure trends, but was unable to do so with distinction. It had a functioning online shopping capability, but failed to market it with the same panache as digital upstarts such as Asos and Boohoo. Not even a deal to sell Beyoncé's Ivy Park brand could help it maintain market share.

One Irish source hails Next, no newbie, as an example of a retailer that has segued into the online era in a way that Arcadia conspicuously has not

It was, throughout, undercut on price by a long line of competitors that sell online, offline or a mix of both. One Irish source hails Next, no newbie, as an example of a retailer that has segued into the online era in a way that Arcadia conspicuously has not.

The company, now looking less than ship-shape, is still paying rents agreed when things were going fabulously. When Topshop took out its lease on the three-floor St Stephen's Green outlet in 2005, the €1.5 million reported rent per annum on the 24,000sq ft premises (now owned by Iput plc) was more than twice that paid by the vacated tenant, Habitat.

In 2014, financial documents disclosed that Arcadia was paying €1.85 million for several adjacent Jervis units that included an upper-floor Topshop. It later rejigged its presence in the centre, folding it into a single Topshop/Topman with two-thirds of its original floor area, but still paid a reported €1.3 million per year for the pleasure. This outlet is now on the cusp of closure just two years after it opened.

At the crux of Arcadia’s crisis is this question: are retail rents too high, or are they just too high for the likes of Arcadia and other retailers of questionable management? The answer will vary with location.

Landlords of prime properties worry that its CVAs will prompt more rent cut pleas from every retailer having a bad time of it in Brexit Britain. Landlords of less-hot properties have a weaker hand, as the alternative to a rent cut might be no tenant.

Toxicity

But the intimidating figure of Green is also a factor in this story. Over the years, Arcadia’s chairman has become intertwined with its brand to toxic effect.

In 2010, tax activists protested outside Topshop’s flagship store on London’s Oxford Street to highlight how Arcadia’s then massive dividends were paid tax-free to direct owner Tina Green. If that left a bad taste, his involvement in the BHS pensions scandal left many feeling outright nauseous: MPs said he had engaged in a “systematic plunder”, reaping hundreds of millions in dividends while leaving it saddled with pension debt. Few were endeared by his decision in 2015 to sell it to a serial bankrupt for £1, not long before it collapsed.

Under pressure, Green pumped £363 million back into the BHS scheme and kept the Blair-era knighthood MPs had moved to strip from him. Those calls have been repeated, however, since he was named as the businessman who injuncted the Daily Telegraph to prevent it revealing that a catalogue of sexual harassment, racist abuse and bullying allegations had been made against him. He denied them all, saying it was only “some banter”.

Although Mediterranean-loving Green (67) has been characterised as the rag trader who came from nothing to conquer retail, his wasn’t quite a rags-to-riches tale. His father, who died when he was 12, was a London property developer. When the privately-educated Green began importing jeans to the UK aged 21, he did so with a family loan.

His yacht-assisted lifestyle has been perennial tabloid fodder, but now it seems business associates were also watching these displays of wealth. Opposition to his first CVA proposals was said to spring from the sense Green could afford to stump up more. Still worth an estimated £950 million (making him a euro billionaire, at least), he has been obliged to delve into his family’s still-deep pockets to placate understandably sceptical landlords.

To limit rent cuts to 25-50 per cent rather than the earlier proposal of 30-70 per cent, the Greens will put up £9.5 million a year for three years, while also pumping £100 million into the Arcadia pension scheme.

Arcadia predates Green’s birth. For much of its history, it was the Burton Group, the origins of which date back to 1903, when Montague Burton, a young Lithuanian immigrant to Britain, founded a menswear retailer that grew to hundreds of shops by the time it went public in 1929.

The company survived two world wars, the 1960s “youthquake” and several recessions. Last month, the compilers of the Sunday Times Rich List described it as “worthless”.