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Arcadia, the fashion empire controlled by Philip Green and his family, is likely to close dozens more of its UK stores, with the coronavirus pandemic compounding already difficult trading conditions.
“No decisions have been made at this time,” said a spokesman for the company. But the terms of a rescue plan agreed with its creditors in June last year provided for the possible closure of many more stores than the 22 initially earmarked.
Arcadia temporarily closed all its remaining stores shortly before the UK government ordered all non-essential retailers to do so. Its ecommerce operation is still trading, although Arcadia generates a relatively small proportion of sales online compared to rivals such as Next.
Its staff are being paid 80 per cent of their wages under the government’s furlough scheme. Last month, it reached agreement with the Pensions Regulator and the scheme trustees to defer a deficit recovery payment into it’s defined-benefit pension scheme.
Under the terms of several different company voluntary arrangements (CVAs) approved last year after weeks of bargaining with landlords, Arcadia stores moved to paying rent monthly rather than quarterly and imposed big rent reductions at many trading locations.
A CVA is a form of insolvency deal agreed with unsecured creditors and commonly used to restructure rent and lease obligations.
The CVAs also included break clauses that allow either the company or its landlords to break leases at certain intervals. The agreement covering Topshop and Topman, the flagship brands that generate half of Arcadia’s revenue, included 20 stores where the company could trigger a break clause within six months of the CVA and a further 19 where leases could be broken after a year.
Some of these stores — in locations ranging from provincial towns like Doncaster and Aylesbury to high-profile centres like Westfield Stratford in London — have already closed. There are also many more stores where a lease was in any case due for renewal within a year of the CVA.
Last week, the company was served a winding-up petition by Principle Systems, a marketing company. Although this is likely to be resolved, it suggests that like many other retailers Arcadia is delaying payments to suppliers to conserve cash.
Other retailers are expected to use the impact of the coronavirus as a pretext for accelerating store closures. Even once stores are allowed to reopen, they fear that the economic impact of the pandemic will reduce demand. They are also likely to be left with inventory that will need to be discounted if it is to sell.
Department store group Debenhams is expected to enter its third insolvency process in a year this month. Most observers expect that this would also lead to further store closures, over and above those provided for in its CVA last year. Arcadia could feel the impact of these, too, since it operates concessions in many Debenhams stores.
Even H&M, one of the more resilient high street operators, is asking UK landlords to cut rents further if trading does not recover once the pandemic is over.
Last week, chief executive Helena Helmersson said the fallout from the virus was likely to accelerate the shift from stores to ecommerce.
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