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Arcadia saved: what the future holds for retail giant

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Landlords and creditors reluctantly approve rescue plan but is it a long-term solution or just a stay of execution?

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Thursday, June 13, 2019 - 6:02am

Sir Philip Green’s Arcadia retail group has been saved from possible administration after creditors and landlords reluctantly approved the company’s rescue plan.

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Having been postponed from last week, the results of the vote were repeatedly pushed back yesterday until after 5pm as Green sought to win over wavering landlords.

In the end it appears his last-minute arm-twisting worked as all seven Company Voluntary Arrangements (CVAs), one for each of the brands under the Arcadia umbrella, were approved by the necessary 75% threshold. These will force store closures and reduced rents across 194 of the group’s 566 UK and Irish stores over a three-year period.

The deal will trigger the closure of 48 stores and the loss of 1,000 jobs, but the vast majority of the existing 18,000-person workforce will stay in employment.

Ian Grabiner, CEO of Arcadia Group, said he was “confident about the future of Arcadia”.

He added: “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.”

But the Financial Times says that “many property companies bitterly resented the terms of the CVA saying that it was opportunistic and forced creditors to foot the bill for years of under-investment in the core operations”.

Arcadia came up against stiff resistance from one of its biggest creditors, Intu, which called the deal “unfair” and voted against it.

Indeed, “Arcadia's troubles in getting its plans through could mark a turning point as landlords increasingly push back against CVAs,” says The Independent.

It may have been saved from the brink, but Retail Week questions if it is more a “stay of execution” for the struggling retailer.

Lady Tina Green, Sir Philip Green’s wife and Arcadia’s majority shareholder, has agreed to invest £50m of equity into the group, in addition to the £50m of funding already provided in March.

In total, Arcadia has said it will invest £135m over three years in refurbishing stores, improving its websites and building more distribution capability, “but this represents a lower rate of capital spending than seen in previous years and is being financed by improved profit and cash flow, not new investment into the business”, says the FT.

“Some analysts believe it may be too little too late,” reports the BBC.

Chloe Collins, senior retail analyst at GlobalData, said the investment would be “too thinly spread”, adding: “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.”

The Daily Telegraph’s Ashley Armstrong has revealed that Arcadia told landlords that it only needs 300 shops as a “critical mass” in the future. This suggests more store closures beyond the 48 announced this week could be on the cards if the group’s fortunes do not improve.

Concerns also remain about a massive deficit in Arcadia's pension scheme.

While years of underinvestment and a series of scandals involving Green himself have undoubtedly played a part in the retail group’s decline, there are also wider forces at play.

Senior market analyst Fiona Cincotta of City Index said Brexit has helped to drag Arcadia to the brink of administration, pointing out that a clutch of retailers have hit serious problems since the 2016 referendum.

“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,” she said.

Cincotta reeled off a list of “notable business failures this year alone” including Debenhams, LK Bennett, Wine Direct, Office Outlet, Steamer Trading, Patisserie Valerie, OddBins and Jamie Oliver’s chain of restaurants.

The list is already long enough without adding the big closures of 2017 and 2018. “Factor in the rise in online shopping, and high business rates, and it all adds up to a crisis,” says The Guardian.

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