The Empire Has Fallen – Is the Grass Greener On the Other Side?

The online fashion retailer, ASOS, has acquired some of the well-known brands from Sir Philip Green’s Arcadia group. The fashion giant has acquired the following brands: 

  • Topshop;
  • Topman;
  • Miss Selfridge; and
  • HIIT

ASOS paid the administrators of Philip Green’s collapsed Arcadia empire £265 million (paying a further £30 million for the stock). The purchase was completed to accelerate ASOS’s multi-brand strategy. As part of their strategy, ASOS have capitalised on the fact that, with Topshop’s 60-year legacy, their products will carry with them a level of quality. The purchase of the well-established Topshop brand is therefore something that ASOS, as a newer digital business, can use to its advantage.        

In yet another blow for the UK High Street, this multi-million-pound deal does not include the 70 physical stores of the Arcadia brands. Although ASOS has purchased £30 million of company stock, the reluctance to buy the stores as well has meant thousands of jobs have been put at risk. Strikingly, this mega-deal highlights the power shift towards online retailers.      

All image rights belong to According To A Law Student (ATALS).

With the rapid expansion of online shopping generally and multiple Covid-19 lockdowns, the move to home shopping has been accelerated dramatically. According to the Centre for Retail Research, the UK retail sector lost 177,000 jobs in 2020, with a further 200,000 expected to be shed in 2021. The fall of the ‘bricks and mortar’ Arcadia-owned stores may well be the final nail in the coffin for the High Street. What this also means is that the surviving High Street brands, such as Next, H&M, and Zara, for example, now dominate even more of the physical outlets. 

In fact, the consortium owning Next was also in talks to purchase the Arcadia brands. However, they were not prepared to pay the asking price and backed out of the deal. Although surviving under the current conditions, H&M announced it was closing 250 of its 5,000 stores in 2021. This is due to the pandemic and the rise of online shopping. Similarly, Zara expects to see the vast majority of its sales move online in the coming years. It too saw mass store closures during 2020. Are we beginning to see a pattern here?     

The failure of the Arcadia empire has not been an overnight surprise. Green’s High-Street chain fell into administration back in November 2020, owing creditors hundreds of millions of pounds and putting more than 13,000 jobs at risk. However, in the deal with Arcadia’s administrators, Deloitte, around 300 employees will transfer to the group. Nevertheless, there has been nothing said on what will happen to the staff working in the country-wide stores…   

Although the deal will boost ASOS’s sales revenue, the company said that the extra income over its business year would be offset by initial ramp-up costs. Ramp-up costs are the costs associated with increasing a company’s production levels to meet substantial demand. There would also be additional one-off restructuring and transaction costs of about £20 million. These expenses would cater for the costs of furloughing staff as well as also transporting company assets to new locations (for example, to the new warehouses).       

ASOS plans to fully integrate the brands into its online sales platform. As ASOS targets a young audience, the acquiring of these former Arcadia brands will, according to ASOS, “resonate well with our customer base”. ASOS, founded in London in 2000, sells fashion, beauty, and home products that are primarily aimed at young adults. It features over 850 brands (such as River Island, Mango, New Look, and Oasis) on its website as well as its own range of clothing.        

All image rights belong to According To A Law Student (ATALS).

Boohoo for Arcadia:

It was recently announced that ASOS’s rival, Boohoo, had entered into exclusive talks with Arcadia’s administrators over the purchase of their Debenhams, Dorothy Perkins, Wallis, and Burton brands. It is understood that the online retailer could pay in the region of £25 million for the brands. This therefore would further dismantle the Arcadia empire. You could say that Boohoo is taking advantage of Debenhams’ current financial situation considering it has been struggling financially and entered into administration twice over the past 2 years (for an overview of the Debenhams administration, check out our FREE e-book!).  

Unlike ASOS, fellow online retailer Boohoo has gone for a distinctly different approach. Although it too targets the younger audience, in purchasing Debenhams, Dorothy Perkins, Wallis, and Burton, it is possible that this is an attempt to expand Boohoo’s consumer demographic. This is interesting since ASOS has acquired brands such as Topman and HIIT to greater penetrate their existing young target market.     

Very few jobs are expected to be rescued as both ASOS and Boohoo are interested in acquiring Arcadia’s brands and online operations, rather than its 444 physical stores. Unfortunately, again for the UK High Street, like for the ASOS deal, the acquisition terms did not include any of Debenham’s remaining 118 stores nor its workforce. This has resulted in around 12,000 job losses.  

The Longer-Term Effects:

Another worrying development has come to light for the Arcadia staff. Due to the sorry state of the Arcadia pension fund, it has been revealed that the sale of Sir Philip Green’s empire could leave the taxpayer and the Pension Protection Fund having to pay up hundreds of millions of pounds.    

Arcadia’s pension fund has a deficit of around £300 million, some of which will be covered as the individual chains are sold off. However, some experts have commented that the Pension Protection Fund could be left with a £200 million obligation even after the various deals are done. Green faced calls from MP’s that he should be stripped of his knighthood after the collapse of BHS in 2016. However, he was eventually pressured into putting £363 million in to help plug its pension hole.   

Arcadia collapsed owing creditors £750 million. However, as secured creditors on a £50 million loan made to the company in 2019, the Green family will be paid first before any funds are divided between suppliers, landlords, and the HMRC. More than 1,000 unsecured creditors stand to receive a tiny fraction of the money owed to them. The taxpayer may also have to step in to cover a £50 million bill for redundancy payments. Administrators have calculated that £47.6 million is owed in statutory notice and redundancy payments for 13,000 members of staff at Arcadia.  

In what has been a tough time for all businesses, Arcadia has not gone down well. Not only have they mirrored the miserable outlook of the UK High Street, but they have also failed to provide for their workforce. As with the demise of Debenhams, you could say that the collapse of the Arcadia group has been one of the biggest corporate failures of the Covid-19 pandemic to date.       

This article was written by Tom Bailey. Tom is a final year LLB law student at the University of Law in Guildford, and a Content Writer for According To A Law Student (ATALS). Tom is keen to pursue a career as a Solicitor, having a specific interest in property law.   

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