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Sir Philip Green’s retail empire is facing “material uncertainty” about its ability to continue trading without new funds, after slumping to a £177.3m loss last year.
Taveta Investments, the owner of Arcadia Group and the company behind Topshop, Miss Selfridge, Wallis and Evans, said difficulties in refinancing a £310m loan on Topshop’s Oxford Street store, due to expire in December, could mean it would have to raise new funds.
It also warned that “difficult trading conditions”, particularly in the event of a no-deal Brexit, might leave it without sufficient cash to deliver its three-year rescue plan.
Green’s retail empire staved off collapse in June after winning the backing of creditors for a rescue plan that involves the closure of about 50 stores, 1,000 redundancies and rent cuts of up to 50%.
What’s the problem?
Physical retailers have been hit by a combination of changing habits, unseasonably warm weather, rising costs and broader economic problems. In 2018 Toys R Us, Maplin and Poundworld disappeared as a result.
In terms of habits, shoppers are switching to buying online. The likes of Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores.
At the same time, there is a move away from buying ‘stuff’ as more people live in smaller homes and rent rather than buy. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.
What help do retailers need?
Retailers with a high-street presence want the government to change business rates. They also want more political certainty as the potential for a no deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs after October 2019. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges which they say put off shoppers.
What is the government doing?
In the October 2018 budget the government announced some relief on business rates for independent shopkeepers. It has also set up a £675m ‘future high streets’ fund under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.
What is the outlook in 2019?
Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further Brexit wobbles to come – retailers are facing a tough 2019. Another rise in the national minimum wage in April and the falling value of the pound against the dollar, which is used to buy goods in the far east, have also added to costs and hit profits.
The big fall into the red was revealed in the company’s latest accounts, which were published at Companies House on Friday.
In a statement accompanying the figures, Taveta’s finance director Gillian Hague said: “There are certain scenarios that could arise in the event of continued challenging and volatile market conditions in the retail sector, including a disorderly exit from the European Union, that would create uncertainties around the ability of the group to operate within the liquidity available from existing funding arrangements.”
This was underlined in a similar statement by Taveta’s auditor, Paul Cragg at PricewaterhouseCoopers, who noted “a material uncertainty which may cast significant doubt about the group’s and company’s ability to continue as a going concern”.
The accounts cover the year to 1 September 2018, but both statements are dated 30 August 2019, indicating that fears for the company’s future persist even after agreement on the rescue plan.
Sales slid by 4.5% to £1.82bn over the yearand the group fell into the red by £177m after hefty one-off costs of almost £217m, mostly relating to leases on loss-making stores. In the previous year the group made a profit of £53.5m.
Despite the losses, the accounts show Green’s wife, Tina, the ultimate owner of the Arcadia Group, was paid more than £23m last year. Taveta redeemed £20m of loan notes and paid interest of nearly £3.4m relating to the purchase of BHS from the family in 2009.
The Green family was still owed £43.4m in relation to BHS, but the accounts show this debt has now been written off.
Tina Green has also loaned the company £50m and agreed to invest £50m of new cash to help with its turnaround plans as well as pumping £100m into Arcadia’s pension scheme over three years. Arcadia itself has put an additional £285m contribution in property assets and cash payments into the scheme.
Those payments ensured support for Arcadia’s restructure plan from the Pensions Regulator, the group’s pension fund trustees and the pension protection fund, an industry-backed lifeboat for collapsed companies’ savings schemes.
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