Arcadia administration imminent: could Frasers or Boohoo buy brands?
Giant fashion group Arcadia is believed to be on the verge of the worst UK corporate collapse of the Covid crisis, with the company widely expected to go into administration as early as Monday. This would put 13,000 jobs at risk.
But the big question is: what happens then? Would majority shareholder Sir Philip Green want to buy it back? Would Boohoo snap up its brands but close its stores? Would Mike Ashley add some or all of its chains to his still-growing retail empire? Or would an as-yet-undeclared bidder show its hand? And what part will the pensions regulator play in all this given that the firm’s high pension deficit gives it a big say it what happens.
The company is seen as having been brought down by a basket of issues from failing to adapt fast enough to online, to botched international expansion, too many shops, high property costs, even the loss of Topshop's 'cool' aura. But the catalyst has been this year's lockdowns.
First though, what we know so far. The company’s chains, which include Topshop/Topman, Wallis, Burton, Miss Selfridge, Dorothy Perkins and Evans, are currently closed in a large part of the UK due to the English lockdown and restrictions in other home nations, although it has continued to trade online during those lockdowns.
However, they do seem to be the last straw and Arcadia had been reported to be in talks over an emergency £30 million loan, without which it was suggested its future was in doubt.
But the loan talks ended without success and a collapse of the business is believed to be inevitable as a result of this. Reports also suggested that administrators could be appointed on Monday.
The leading brands in the portfolio, Topshop and Topman, are seen as being worth several hundred million pounds, but the others are much less valuable, although they could still be of interest to buyers.
However, it's likely that any new owners wouldn't want to continue operating all of the 550 shops. Arcadia has already been closing branches for a number of years and many more might have to close under a change of ownership.
Boohoo has been suggested as a possible buyer of some of the brands. But his would raise the prospect of massive store closures given that Boohoo has always been very clear that it doesn't want to operate physical shops. It has always closed the store estates of any of the brands that it has acquired.
Analysts have already raised the prospect of some Arcadia brands becoming online-only in the new retail world that fashion retailers are having to face up to.
That would not only mean mass job losses but also create some big gaps inside malls, retail parks, department stores and on high streets given that the company has so many stores.
PHILIP GREEN, MIKE ASHLEY AND BOOHOO
It’s seen as unlikely that Sir Philip Green would want to buy back any of the brands and continue operating them. He bought the high street group in 2002 for £850 million and saw early success with it. But recent years have been something of a headache for him.
From the backlash over the BHS collapse, to scandals, criticism from MPs, negative press, mounting losses and simply trying to keep Arcadia afloat, running a large retail operation hasn't been particularly enjoyable in recent periods.
Then there’s Mike Ashley. The Frasers Group chief has reportedly offered a £50 million emergency loan to his business rival to prevent an administration filing. Frasers CFO Chris Wootton said: “We hope that Sir Philip Green and the Arcadia Group will contact us to discuss how we can support them and help save as many jobs as possible.” But an Arcadia insider reportedly later told the BBC: “If this was about £50 million we could find that in five minutes. This is obviously a sad day, we tried to save it a year ago when £200 million was put into the business and the pension fund, but it's impossible to operate now. You don't know when you'll be open, you don't know what stock to buy.”
But while that was dismissed as a stunt by some observers, the always-ready-to-buy-distressed-brands Frasers CEO is being touted as a possible enthusiastic new owner of some of the brands. And that could be good news for some stores. Ashley has always been very committed to physical shops, as well as online.
But few people are expecting a 100% happy outcome and ex-Arcadia and M&S CEO Lord Stuart Rose said in a BBC interview that “sadly what will happen is people will come and pick over the carcass, [with] tastier bits” (like Topshop) likely to be sold but an unclear fate for the other labels.
Yet any solution has to take account of the pensions regulator’s opinion. The chairman of the work and pensions select committee has already made comments that suggest the firm’s roughly £350 million pension deficit will be seen as a big issue in the whole affair.
It’s also interesting that any administration filing on Monday would happen a day before a law change that puts HM Revenue & Customs at the front of the queue for payouts from failed companies. A Monday filing could mean the state loses out. The law means more of the taxes paid by employees and customers (such as PAYE and VAT) will go to the state, rather than being distributed to other creditors.
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