Arcadia falls into administration putting 13,000 jobs at risk – as it happened

Here’s our news story on Mike Ashley’s offer of a £50m emergency loan to Arcadia (and his interest in any sale process should the business collapse).

Mike Ashley’s Frasers Group could try to buy some Arcadia brands if the company does collapse, explains Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown:

If Arcadia Group does go into administration, Frasers Group is expected to go picking over the carcass, potentially to give a new lease of life to brands like Top Shop or Miss Selfridge.

But Mike Ashley has already been on an expansion drive this year, buying into Hugo Boss and increasing the company’s stake in Mulberry, so there is some concern about whether Frasers Group can afford to go on another shopping spree right now.

Boohoo, the online clothes retailer, could also be interested in a brand such as Topshop, she adds:

Given the accelerated shift to digital brought about by the pandemic, the survival of iconic brands like Top Shop is going to rely heavily on improving its e-commerce offering, to enable them to stand a chance in the highly competitive online fashion world.’’

But taking brands online-only would not save jobs in Arcadia’s stores around the UK.

While Arcadia teeters, Sir Philip Green has been based aboard his super-yacht, Lionheart, docked in Monaco’s harbour.

Over the weekend, the Daily Mail ran a photo of Green “soaking up the sun on his £100 million superyacht under a fur-lined blanket” last week,

A BBC reporter in the principality said yesterday there was no sign of Sir Philip on deck, but “crew members were busy cleaning the 90m-long vessel”.

Green’s opulent lifestyle will intensify pressure to tackle the £350m pensions black hole at Arcadia, especially as he’s reportedly planning a festive break at an exclusive Indian Ocean resort in the sunny Maldives.

Our wealth correspondent, Rupert Neate, writes:

Seeking to avoid the coronavirus pandemic, Green has spent most of the past year permanently onboard the 300ft yacht, which features a helipad, pool, 15 crew cabins and room for 12 guests. It is the third yacht that Green has commissioned from Italian shipbuilder Benetti Yachts.

If Green pushes ahead with the trip to the Maldives, local people are likely to remember him from his previous visits. He picked the Indian Ocean archipelago as the location for his 55th birthday party, which lasted five days, and reportedly featured a troupe of topless dancers and performances by George Michael and Jennifer Lopez. It was said to have cost about £20m.

So many of his famous friends – including Kate Moss and the Vogue editor Anna Wintour – arrived by private jet that the local airport authorities refused to allow any more to park. The party for his 60th, billed as PG60, was held at the Rosewood Mayakoba resort in Mexico, with performances from Robbie Williams, Stevie Wonder and the Beach Boys. His presents have included a £7m Gulfstream jet and a £250,000 gold Monopoly set.

If Arcadia collapses, then hundreds of small businesses in its supply chain will suffer.

Invoice insurance business Nimbla estimates that Arcadia’s suppliers could be left holding up to £250m of unpaid invoices (the calculation is based on prior public accounts and similar defaults in the past).

This would have a “a ripple effect” through the sector, threaten the existence of hundreds of small businesses and jobs further down the supply chain.

Flemming Bengtsen, CEO at Nimbla, says this could crush some companies who are being kept afloat by the government’s coronavirus loan support.

“The much needed injection of cash into UK businesses via CBILS and BBILS has succeeded in staving off insolvency for many SMEs. However it has also created a wave of “zombie” companies that have little realistic chance of survival.

Arcadia’s collapse highlights the danger of a domino effect as defaults on trade credit trigger others to fail. We estimate as much as £250m of unsecured debts will be left behind to Arcadia’s suppliers.”

Mike Cherry, the chairman of the Federation of Small Businesses, is also concerned, comparing the situation to the liquidation of outsourcing giant Carillion two years ago.

Cherry says (via the Daily Telegraph) that Arcadia has already been processing invoices less frequently and lengthening payment terms, which hurts the cash flow of small suppliers.

“We are concerned that Arcadia is starting to look like the Carillion of retail.”

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In the City, shares in retailer JD Sports have jumped by over 6% in early trading.

That follows reports over the weekend that JD Sports might back out of its planned takeover of Debenhams, another ailing retailer, because of the Arcadia crisis.

Arcadia is Debenhams’ biggest concession holder, so its collapse could lead to more empty spaces across Debenhams department stores.

JD Sports’ interest in Debenhams has spooked some shareholders, given the crisis in retail and the damage caused by the pandemic.

Retail analyst Nick Bubb says JD’s interest appears to be waning.

JD Sports shareholders will be relieved that Peter Cowgill now has an excuse to back away from his dubious plan to buy Debenhams.

JD Sports has helped to lift the FTSE 100 by 20 points, or 0.3%, to 6387 points, leaving it on track for its best month in 31 years - or possibly even the best ever.

But this creates further uncertainty for Debenhams, which employs 12,000 staff, and runs 124 stores. Analysts had predicted that up to 60 Debenhams shops could close next year if JD took the group over.

Mike Ashley’s Frasers Group has also been keen to acquire Debenhams, but baulked at the £300m price tag.

Arcadia was already in trouble before Covid-19 hit the retail sector. Back in 2019, it avoided collapse after creditors backed a rescue plan that involves the closure of 50 stores and 1,000 job losses.

Business consultant Kate Hardcastle told the BBC that there are three reasons the company is struggling:

1) It lost relevance with consumers, who are getting savvier and very social media oriented. They want conversations with brands, and Topshop has ‘dipped out’ of that.

2) The market has been disrupted by discount firms such as Primark, or online through companies such as Boohoo.

3) Arcadia’s ‘trader mentality’ --- the idea of buying stock cheap, stacking it high, selling it for a profit -- is now outdated.

She adds that firm’s success was also blighted by Philip Green hitting the tabloids ‘for the wrong reasons’ (eg buying a third luxury yacht when former chain BHS was in collapsing)

My colleague Zoe Wood has analysed how Sir Philip Green’s empire, which once dominated the high street, is now teetering on the edge of administration.

The 68-year-old businessman has been trying to extricate himself from Arcadia without loss of face for some time. The company only narrowly avoided administration last year when landlords backed a restructuring plan that involved closing 50 shops and shedding 1,000 jobs.

In the coming days Arcadia is expected to enter “light-touch” trading administration, which means management retains control of the day-to-day running of the business while administrators seek buyers for all or parts of the company. Struggling department store chain Debenhams took this route in April, although a rescue deal is still to be finalised.

“Green was one of the leading retailers of the time,” said a senior analyst who declined to be named. “But times have changed and he hasn’t moved with them. Topshop used to be a fashion icon, with the Kate Moss look and so on. It was a big deal.”

But unlike international rivals such as H&M and Zara owner Inditex, Arcadia did not pursue major overseas openings, apart from a failed attempt by Topshop to break into the US and China, and critics say Green failed to invest in the business.

So with online rivals now dominating the sector, time could finally be up for the bruising businessman-celebrity...

Green’s abrasive style didn’t win him many friends in the boardroom, but it has won grudging respect. “He is one of the best dealmakers I’ve seen,” recalled one senior retailer.

I don’t think he is a particularly good retailer; he is good at buying and selling. He ended up being a victim of himself. When you want to screw everybody over all the time … nobody wants to buy anything from you.”

Some early news --Frasers Group, the retail group formally known as Sports Direct, has confirmed that it has offered Arcadia up to £50m of emergency funding.

Frasers, run by Mike Ashley, also says it would be interested in taking part in any sale process - should Arcadia fall into administration.

Frasers says:

Frasers Group notes recent press reports concerning the potential provision of emergency funding by the Company to the Arcadia Group.

The Company can confirm that it has made an offer and provided draft terms to the Arcadia Group for a loan of up to £50 million and is now awaiting a substantive response.

Should the Company and the Arcadia Group’s efforts to agree an emergency funding package fail and the Arcadia Group enter into administration, the Company would be interested in participating in any sale process.

News of Ashley’s helping hand broke over the weekend. However, Arcadia may not be keen, as the Daily Mail reported:

However, his offer has been angrily dismissed as a ‘publicity stunt’ by sources close to Sir Philip.

One said: ‘Sir Philip is not keen to jump into bed with a chancer like Mike Ashley.’

MPs and unions have been urging Sir Philip Green to “make good” the huge shortfall in Arcadia’s pension scheme.

Otherwise, staff could suffer a 10% cut to their retirement income if the company collapses, and the scheme is placed into the UK’s Pension Protection Fund.

My colleague Joanna Partridge explains:

Stephen Timms, the chair of parliament’s work and pensions select committee, called on Green and his family to plug an estimated £350m funding shortfall. He said he would write to the Pensions Regulator on Monday to “underline the importance of securing the interests of pension scheme members”, adding: “Whatever happens to the group, the Green family must make good the deficit in the Arcadia pension fund.”

The former Labour MP Frank Field, who clashed with Green when his BHS department store chain went bust leaving a huge hole in its pension fund, said Green should honour previous promises that he would look after his “family” of workers.

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Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Arcadia is on the brink of becoming the biggest corporate casualty of Britain’s Covid-19 crisis. Sir Philip Green’s retail group is expected to filed for administration as soon as today, having failed to agree a rescue deal to keep the company afloat.

The move would put 13,000 staff at risk at Arcadia’s 500 stores, at its Topshop, Burton and Dorothy Perkins chains, and probably end of Green’s career as a retail magnate.

Covid-19 has been a severe blow for Arcadia. Having failed to seize the opportunity of online shipping, it was already struggling to match faster-growing and more nimble rivals like Asos and Boohoo.com.

The pandemic, which has forced its stores to lock down twice this year, has deepened its plight.

As one insider put it to the BBC:

This is obviously a sad day, we tried to save it a year ago when £200m was put into the business and the pension fund, but it’s impossible to operate now.

“You don’t know when you’ll be open, you don’t know what stock to buy.”

Arcadia’s current and former staff also face uncertainty now - as there’s a black hole up to £350m in its pension fund. Add in the bills owed to suppliers, and Arcadia’s collapse could cause serious damage to the wider UK retail sector.

Markets round off record month

Arcadia’s plight is the climax to a particularly dramatic November. There’s been plenty of bad news this month, with Covid-19 deaths approaching 1.5 million, and cases surging at a record rate in America.

In Europe, the second set of lockdowns are threatening to push the eurozone and the UK towards double-dip recessions.

But November has also brought uplifting news - encouraging vaccine trial results, and the prospect that president-elect Biden will attempt to tackle the pandemic while also pushing through a new stimulus package.

And for those reasons, this has been a staggeringly successful month for share prices.

MSCI’s All Country index of stocks has surged by over 13% this month, hitting fresh all-time highs, and on track for its best month since it was created in 1990.

The UK’s FTSE 100 has also had a stellar month, having underperformed for most of the year. With one day to go, it’s gained over 14% during November, close to the record month - January 1989, when it jumped 14.4%.

Chris Weston of Pepperstone says November has been “a breathtaking month for equities, and a poor month for the US dollar and gold”.

Why? Because investors are anticipating a return to normality in 2021 as vaccines are rolled out, and - crucially - as central banks continue to provide unprecedented support (through record low interest rates, quantitative easing, and cheap credit).

European markets are expected to dip back this morning, though.

The agenda

• 9.30am GMT: UK mortgage approvals figures for October
• 1pm GMT: German inflation figures for November
• 2.30pm GMT: Bank of England policymaker Silvana Tenreyro speaks at a Resolution Foundation event
• 3pm GMT: US pending home sales figures for October