End Of An Empire: Arcadia Group collapses into administration

December 3, 2020

3 min read

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What's going on here?

Following a testing few years, and the second national lockdown in England, retail giant Arcadia has fallen into administration.

What does this mean?

After the failure of a last-minute rescue deal in November, which involved a proposed £30m loan, the popular Arcadia Group, comprising some high-street favourites such as Topshop, Burton, and Dorothy Perkins, has entered administration. This gives the company some much-needed breathing space from creditors and landlords, as advisers at Deloitte assess all of the available options. It also allows for the protection of assets, and to keep the company in operation while directors sell brands separately. However, a £350m deficit in the company’s pension fund threatens to worsen problems, and owner Sir Philip Green is under pressure from unions and MPs to use his private fortune to make up for the shortfall.

Like many other retailers, Arcadia has faced a difficult few years amid rapidly changing shopping habits, swiftly followed by the restrictions of the pandemic. On the brink of collapse last June, the company closed 50 stores and cut rents up to 70%. A further 500 jobs were lost this July when non-essential businesses reopened, then a second lockdown saw retailers once again closing their doors to customers. Lasting between 5 November and 2 December, this closure disrupted the crucial trading period leading up to Christmas, and was the final nail in the coffin for Arcadia. As a result, 13,000 jobs are currently at risk, with Christmas around the corner and a heavily saturated job market.

What's the big picture effect?

It’s safe to say that the retail industry has had a rough 2020. Many retailers found themselves in precarious positions prior to the pandemic, dealing with a decline in footfall, increasing pressure to adapt to keep up with online competitors and rising business rates. The enforced closures of non-essential shops during the first lockdown only served to make matters worse. With 40% of consumers reporting an increase in online shopping this year, more traditional companies like Arcadia Group were hit hard. This also saw the likes of Ted Baker and Burberry cutting hundreds of jobs, while Debenhams finally sunk into administration after years of struggling, resulting in 4000 job losses.

While long queues outside newly reopened shops back in July suggested a soar in sales, it was not enough to undo the damage of months of closure. Less disposable income, due to the many lost or furloughed jobs, reduced trading hours, and a large proportion of people still avoiding crowded spaces, meant many shops were just about keeping afloat during these last few months. On top of this, retailers have shelled out thousands to adapt stores and ensure a Covid-safe shopping environment, incurring further costs.

Long-term, the country may see a real problem of unemployment, as the retail industry employs over 3 million workers across the country. The collapse of one of the country’s largest retail groups shows not only how seriously the pandemic has affected the industry, but also the devastating effects of failing to adapt to changing pressures and competition. Subsequently, it calls into question what this may mean for other retailers who mainly rely on in-person sales. If Arcadia is anything to go by, this is just the beginning in a long line of struggling retailers, more job losses, and huge changes to the industry as we know it.

Report written by Lotanna Okaro

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