Topshop owner Arcadia is teetering on the brink of collapse

MarketLine   27 November 2020 (Last Updated November 27th, 2020 15:34)

Topshop owner Arcadia is teetering on the brink of collapse
The company has previously cited the challenging global retail market as the main contributor to its poor performance of late. Credit: Travers Lewis/Shutterstock.

Sir Phillip Green’s retail empire, Arcadia, is on the brink of collapse amid the tough conditions brought about by the Covid-19 pandemic.

The potential collapse of retail giant Arcadia, which owns Topshop, Burton, Dorothy Perkins and Burton, could put 15,000 retail and head office jobs at risk. The group is reportedly preparing to appoint administrators from Deloitte as soon as next week.

The news follows reports that a £30 million emergency loan was rejected by lenders earlier in November. If the insolvency is confirmed, Arcadia could go up for sale and a number of stores could face permanent closure.

Arcadia has cited the pandemic as a major contributor to its struggles. Non-essential retailers in England have been forced to close for four weeks until 2 December to contain the spread of Covid-19. This followed a longer lockdown earlier in the year which began in March.

Arcadia’s struggles began long before the pandemic

On 6 September 2019, Arcadia Group filed its full-year financial results, revealing that it had swung to a massive loss last year, which raised uncertainty surrounding the future of the once-thriving fashion empire at the time.

The accounts filed at Companies House showed that the business recorded a full-year loss of £170m ($211m) in the year to 1 September 2018, compared to a profit of £49.4m ($65.8m) in the year prior.

In September 2019, Arcadia had reportedly started to separate its centralised functions in preparation for the dismantling of the group. However, the company continued to deny that it was planning to sell off its brands, with a spokesperson for Arcadia describing the notion as “wholly inaccurate and unfounded.”

Earlier that year, in June, Arcadia managed to avoid a collapse, when the company won the backing of creditors for a plan which required the closure of 50 stores, incurring 1000 job losses.

The online retail and fast fashion trends have proven to be unfavourable for Arcadia

The company has previously cited the challenging global retail market as the main contributor to its poor performance of late – specifically increased competition on the high street and the rise of online fashion retailers.

The popularity of online shopping has benefited online pureplay competitors, such as Boohoo, ASOS and Missguided. By remaining purely online, competitors have been able to avoid the growing cost of retail space, something which has plagued traditional retailers and has led to the closure of hundreds of stores in recent years. It has also allowed them to navigate the pandemic much easier.

The fast fashion trend has also had a negative impact on the Arcadia Group, as bringing on-trend products to market within the shortest possible time is now crucial to remain competitive in the market, something which the company has struggled with.