Fatal flaws that sank Arcadia – by ex-boss

Flaws that sank retail giants, by the man who really knows – their ex-boss

DON’T let anyone tell you that the collapsed high street giants De benhams and Arcadia would have been fine and dandy if it were not for this dreaded pandemic. Yes, both firms were toppled by a freak event in the end, one which no one could have predicted.

But just like when the Titanic hit an iceberg more than a century ago, these modern-day monoliths would not have been sunk by Covid if they had not already run so desperately off course. Take it from me – someone who ran the two retailers as chief executive of Burton Group (then parent company of both) from 1992 to 1998 – some of the high street’s most famous names were in grave danger long before anyone had heard of Covid.

Wind the clock back to late last year and you’d find a perfect storm brewing for department store Debenhams and Topshop and Dorothy Perkins owner Arcadia – some, but not all of it, of their own making.

Their most fundamental problem was woefully underestimating a tectonic shift in the way we shop.

Women, who since the start have been the core customers at Debenhams and Arcadia brands, had taken to the convenience of internet shopping far sooner than most retail executives had predicted.

In the early 2000s, retail boardrooms were still dominated by the old- fashioned view that women could never prefer online shopping to the experience of visiting a high street store. You could not try on clothes or feel the fabric running through your fingers, many executives would say, so the internet would never be able to compete.

Fooled by this belief, clothing bosses then did the worst possible self-inflicted damage. They started shedding staff in stores as an easy way to save on costs and boost the bottom line. But in doing so, they destroyed the final key ingredient that made high street shopping more enjoyable than its digital alternative: top- notch customer service and sage advice on your choice of garment from an expert in the field (see box, below).

BY THE time the 2010s rolled around, it became clear that the internet was very much here to stay and was rapidly cannibalising high street sales. Eventually, Arcadia and Debenhams joined the party – but they arrived late, with too little commitment and understanding.

To be fair to the likes of Sir Philip Green, who faced considerable flak when he put Arcadia into administration at the end of last month, there were other reasons his online rivals were able to steal a march.

Sir Philip, for example, can’t be blamed for the hammer blow delivered by unfair property taxes, uneconomic parking fees and rapacious landlords. While shops on the high street were clobbered by rising business rates, online sellers faced no equivalent digital taxes.

With such an uneven playing field, is it any wonder that the high street struggled to outdo nimble low-cost rivals such as Asos and Boohoo?

Landlords, meanwhile, merely added to the cost burden by exploiting the 25-year lease contracts that became standard in the 1990s. These one-sided deals had clauses to review rents every five years, but only upwards. Even at the time, that seemed unfair to retailers. As a result, over the years rents have always – always – gone up even as profits have fallen. Pleas from business owners for understanding have fallen on deaf ears. Landlords are now paying the price for their intransigence and greed as swathes of high street stores fall empty.

Three other trends swirled into what would become a perfect storm as 2020 approached.

First, the pull of fashion had since the 1980s come under sustained attack. Shoppers were increasingly being offered other ways to spend their disposable income – think cheap holidays to the Balearics or a £10 pizza at one of Britain’s now ubiquitous casual dining chains.

Second, out- of- town supermarkets had muscled into the fashion scene, and were making hay. Brands such as George at Asda and F&F at Tesco took advantage of lower business rates in less desirable retail parks and slick distribution networks to undercut the high street on basic family clothing – and they offered free parking.

Once mums could pick up a blouse or babygrow with their tomatoes and flour on the weekly shop – and pay nothing to park while they were at it – the pull of the high street waned further still.

Sadly, the final ingredient in the toxic mix was greed. Vital cash was repeatedly sucked out of the retail giants by so-called entrepreneurs.

Think of the likes of Sir Philip, whose family took an astonishing £1.2 billion dividend out of Arcadia in 2005. Or the private equity barons who raided Debenhams by selling off shop premises which the retailer previously owned outright and leasing them back from those exploitative landlords, pocketing the proceeds. The effect of this cash drain was to remove the financial flexibility all companies need if they are to cope with any downturn, let alone a crisis like Covid.

SO WHEN t he unprecedented l ockdown hit in March, hardly anything was left in the coffers to see Debenhams and Arcadia through. By the second lockdown in November, the stockroom cupboard was already stuffed with IOU notes to banks and other lenders, while suppliers were paid late or not at all.

Of course, the fact that high street shops were twice closed to the public by Government decree was devastating enough in itself, but it accelerated the trend to online – and, as any consumer company will tell you, once habits change they are extremely hard to change back.

The fear that Covid instilled in the public also played a crucial role in sounding the death knell for firms already weak. The fear of being infected, of infecting someone else, and the fear of losing your income – which, inevitably, stops us spending – left high streets ghostly quiet for longer than many retailers could take. That’s not to mention the hundreds of thousands of unfortunate hospitality staff and other workers who had already lost their jobs and simply could not go shopping for anything other than bare essentials, and the lack of attractive, thriving pubs and restaurants drawing people into town centres.

In the end, Covid worsened the myriad problems already troubling so many of our best-loved retailers. In cases where greedy, self-centred owners had sucked vital money out of high street businesses, it became fatal. Once again, this disease has proved that it damages those with underlying health complaints most severely of all.