Arcadia and the shakeout on the high street

Many will sympathise with the 15,000 staff whose livelihoods are thrown into question by Arcadia’s expected collapse into administration — and the thousands of retirees wondering if they will still receive their full pensions. Fewer will shed a tear for Philip Green, the pugnacious billionaire who built and lost a retail empire, consoling himself on his superyacht in Monaco. Arcadia had specific weaknesses and almost failed last year. But its downfall — which also puts at risk a rescue of Debenhams, with 12,000 staff — highlights the scale of the crisis the pandemic has catalysed in UK retail.

Sir Philip was, in truth, always a better dealmaker than retailer. After starting out selling excess stock in London’s rag trade — he claimed he could “price a garment at 20 paces” — he proved adept at assembling loan packages for acquisitions, then selling property and cost-cutting to improve profitability. The formula initially worked well at Arcadia, bought for £850m of mostly borrowed money in 2002, where he raised profits quickly enough to refinance the debt by 2005 and generate a £1.2bn dividend paid to his wife.

But Sir Philip failed to reinvent chains such as Topshop, Burton and Miss Selfridge as fashion retail was disrupted by cheaper rivals such as Zara, H&M and Primark. Crucially, he invested too little in an online presence to fend off internet upstarts such as Boohoo. His reputation was waning even before he had to pay £363m in 2017 to refinance the pension scheme of BHS — which he had sold for £1 to a serial bankrupt — and employees made sexual harassment allegations, which he has denied.

If some of Arcadia’s problems were homegrown, the model of debt-fuelled expansion coupled with an underestimation of how the smartphone would reshape retail has played a large part in the predicament of the high street today. Debenhams, the struggling department store chain in which Arcadia is the biggest concession operator, is another example. The result is too much space — by some estimates, an excess of 40 per cent — chasing not enough sales. A shakeout was inevitable. But by keeping many shops closed for large parts of this year and accelerating the shift to online, the pandemic is bringing about in months what might otherwise have taken years.

Retailers must take their share of blame for problems on the high street. They cannot expect blanket bailouts. But a rapid and chaotic implosion will seriously damage the fabric of towns and cities — an issue, as chancellor Rishi Sunak conceded last week, that the public cares deeply about. It will also hit property owners, which include banks, pension funds and insurers. As it weighs competing demands for support, the government must consider how it can ease the transition for high streets.

Extending the current “holiday” on business rates beyond next April, and reducing the level once they are reinstated, would relieve some pressure on retailers. Mr Sunak announced last week a £4bn “levelling up fund” to support local improvement projects. More will be needed, and such projects must be part of comprehensive regeneration strategies developed jointly by local authorities, business and Whitehall.

The post-internet, post-Covid high street may one day look more like it did before the postwar retail boom, with fewer shops — but more space given to housing, leisure, health and wellbeing, and flexible working. The rapid loss of Arcadia and other chains this year will require financial support, bold and creative thinking, and complex co-ordination if such transformations are to stand any chance of becoming a reality.


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