Smiles at Arcadia as CVA is approved, hard work starts here say analysts

By

Sandra Halliday

Published
Jun 12, 2019

So Arcadia’s CVA proposals have been approved and the fashion retail giant has averted the imminent threat of an administration filing and a possible break-up of the group.

All seven CVAs on the table were approved and it means the group’s majority shareholder, Sir Philip Green’s wife Tina, will invest a further £50 million of equity into Arcadia, following £50 million provided a couple of months ago.

The company will also be cutting its annual pension fund payments in half (to £25 million) in a deal agree with The Pensions Regulator.

But the difficult works starts now for Green and the Arcadia team, especially for CEO Ian Grabiner with UK retail facing unprecedented problems as online sales, Brexit, sustainability issues, high rents, and cautious consumers mean the existing fashion retail rule book is being torn up.

Grabiner said after the creditors meeting on Wednesday: “After many months of engaging with all our key stakeholders, taking on board their feedback, and sharing our turnaround plans, the future of Arcadia, our thousands of colleagues, and our extensive supplier base is now on a much firmer footing.

“From today, with the right structure in place to reduce our cost base and create a stable financial platform for the group, we can execute our business turnaround plan to drive growth through our digital and wholesale channels, while ensuring our store portfolio remains at the heart of our customer offer.

“I am confident about the future of Arcadia and our ability to provide our customers with the very best multi-channel experience, deliver the fashion trends that they demand, and ultimately inspire a renewed loyalty to our brands that will support the long-term growth of our business.”

The CVA approvals mean rents will be slashed and around 50 more stores will be shut on top of those that the company has already been closing in recent years. 

Staff will be relieved that thousands of jobs at Topshop/Topman, Miss Selfridge, Burton, Dorothy Perkins and Wallis have been saved, although the axe will fall more heavily on some chains than on others.

Analysts acknowledged the difficult task ahead with GlobalData’s Chloe Collins saying: “Although Arcadia’s CVA has been approved, it is unsurprising that it faced a backlash from some landlords who have doubts about the retailer’s future. Its leading brands – Topshop and Topman – still have a strong following among millennials, however many of the others, such as Miss Selfridge and Dorothy Perkins, are now irrelevant in a highly saturated market and chances of revival are slim, leading landlords to question whether other retailers could offer their spaces more longevity.”

Arcadia is likely to focus much more heavily on digital sales and Collins said that the decision to add Topshop and Topman to the Asos branded offer as part of the turnaround plan “is wise to increase the brand’s reach, especially internationally. However it is crucial that the £60m invested into advancing Arcadia’s digital platforms includes competitive and convenient delivery methods to rival Asos and maintain traction on the brand’s individual sites.”

She also thinks the £75m being invested by Green into Aracdia’s physical stores as part of the deal “is going to be too thinly spread as the agreed closures still leave Arcadia with an estate of around 500 stores which have been neglected for far too long and are now unable to match competition which moves in favour of experience-led shopping.”