A Sigh of Relief: High street retail giant Arcadia Group hobbles on
June 19, 2019
2 min read
What's going on here?
The fashion retail giant Arcadia Group (owning the TopShop and Miss Selfridges brands amongst others) successfully avoids administration by securing a rescue deal with its creditors, preserving 17,000 jobs from prospective layoffs.
What does this mean?
Investors breathe a sigh of relief as Arcadia Group’s rescue deal (or company voluntary arrangement, also known as a CVA) narrowly passes the required 75% majority voted by the Group’s creditors including landlords, pension trustees and suppliers.
This rescue deal involves passing seven CVAs for Arcadia Group’s primary fashion brands – Topshop, Evans, Miss Selfridge, Wallis, Dorothy Perkins, Outfit and Burton. The reason why seven CVA deals are passed at once is that the Arcadia Group practice interconnected indebtedness. This set up means that the parent indemnifies (as the primary payee) or guarantees (as the secondary payee) the subsidiary brand’s loans. It means that if Arcadia Group runs into financial trouble and cannot financially back its subsidiary companies (like Topshop, Burton etc.), the entire Group falls together, which explains the current domino effect of Arcadia’s situation.
In this CVA package, it was agreed that 48 stores will close down resulting in 1000 jobs axed. Arcadia’s landlords agreed rent of cuts between 25% and 50% for another 200 stores. For Arcadia, this will ensure that it has more valuable time. In return, the Group will pour £50m in to the business, with hopes that it can revamp its identity (both offline and online) and reinvigorate its falling popularity against competitors like ASOS, Boohoo.com and H&M.
What's the big picture effect?
One clear message is that complacency will not last in an increasingly cut-throat retail industry. With the fall of other established giants like Debenhams and House of Fraser, Arcadia Group’s CVA deal is another stark example that retailers must learn how to manage with online competition like ASOS. By doing so, companies will be able to deal with the costs that arise from their offline presence (like rising rent costs).
But some argue this may have come a little too late. They say this is another opportunistic move for an industry giant to push the damage caused by years of underinvestment back to the lenders. Factoring in dampened consumer confidence and spending power due to Brexit, the cumulative effect of troubled businesses closing down one after the other (like Jamie’s Italian and Toys R Us) has generated a grim wave of CVA deals with landlord rent discounts attached.
Despite millions currently being poured into revitalising the Arcadia Group, it still has a huge task ahead of it. It remains to be seen how well the Group will manage against the threat of fast fashion retailers and exclusive online stores. But given Arcadia Group’s longevity in the British retail scene, this close call could be the catalyst for a big change in high street fashion.
Report written by Roslyn L
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