Arcadia Group – owner of Topshop, Topman, Burton, Miss Selfridge, Evans, Dorothy Perkins and Wallis – has had its raft of seven CVAs approved by landlords at a tense vote in London this afternoon.
The move comes after a tense standoff last week that saw the vote meeting postponed as Arcadia owner Sir Philip Green sort to persuade more of the landlords to vote through the deal. It is understood that that vote was going to go against Green and hence he postponed. During that time a new deal has been struct with Green and his wife adding more money to the group pension pot. It seems to have worked.
According to a statement issued by the company following the vote “Arcadia Group is pleased to announce that all seven of its Company Voluntary Arrangements (CVAs) have today been approved by the required majority of the companies’ creditors, including its pension trustees, suppliers and landlords. As described in the CVA proposals, upon there being no remaining risk of challenge to the CVAs, the Group’s majority shareholder, Lady Green, will invest £50m of equity into the Group, in addition to the £50m of funding already provided in March. Lady Green has also agreed to fund the cost of the amended rental reduction terms within the CVA proposals, as announced on 7 June.”
The statement continues: “Separately, the Group has reached an agreement with the Trustees of the pension schemes, the Pensions Regulator and the Pension Protection Fund, by which Arcadia Group will reduce its deficit repair contributions from £50m to £25m per year, for three years, with security granted to the value of £210m over certain assets of the Group, to further support the schemes. As previously announced, Lady Green will provide an additional £100m of cash into the schemes to help bridge the shortfall, with funding of £25m per year for the next three years plus an additional £25m contribution.”
Arcadia Group CEO, Ian Grabiner, says: We are extremely grateful to our creditors for supporting these proposals and to Lady Green for her continued support. 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.”
What’s in the deal?
The CVA arrangements agreed will see rent reductions of between 25 and 50% will be seen for 194 UK and Irish stores and the closure of 23 stores – with the loss of 500 jobs. Another 25 store closures with the loss of another 520 jobs is also now expected following today’s meeting.
Grabinar says: “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.”
The deal also sees Green and his wife retain control of the company, which isn’t to everyone’s liking. One of Arcadia’s landlords – Custodian – is locked in a battle with Arcadia to recoup a £140,000 ‘dilapidation claim’ on one of its properties once leased by Arcadia. Before the crucial vote, Custodian fund manager Richard Shepherd-Cross told City Wire: “The culture of the organisation is set at the top and it permeates down. We had two properties rented to Arcadia. We either have a CVA with Green [in charge of Arcadia] or administration where administrators take over. We’d rather have the administrators than him.”
Why is Arcadia in CVA?
The CVAs have come about by a rapid decline in Arcadia’s fortunes, driven by a combination of not keeping pace with its fast moving competitors in both High Street and Online fashion.
Richard Lim, chief executive of economics research consultancy Retail Economics, says: “The unrelenting shift towards online, fiercer competition and heightened customer expectations have forced yet another retailer into taking drastic action to try to save the business. These changes are happening at an unprecedented pace and proving too fast for many retailers to cope.”
Lim continues: “Arcadia has failed to shift fast enough to a more experience and digitally-led business model, burdened with too many stores, too much space and inflexible lease structures while the impact of rising operating costs has decimated profits.
Brexit has also taken its toll. According to Fiona Cincotta of City Index: “Brexit is slowly but incredibly persistently eroding the confidence and the spending power of the British consumer. The process started fairly discreetly but given that it has now been in place for close to three years it is claiming more and more victims. Notable business failures this year alone include Debenhams, LK Bennett, Wine Direct, Office Outlet, Steamer Trading, Patisserie Valerie, OddBins and Jamie Oliver’s chain of restaurants. The list is already long and scary enough without adding the big closures of 2017 and 2018.”
“But it’s not just fewer stores that are needed to ensure Arcadia’s long-term survival,” warns Lim. “It ultimately needs a leaner business model, including less staff and fewer brands, as well as investment into its identity and customer experience to fend off online and value retailers.”