The Arcadia Group – What Went Wrong?
In filing for administration last week, the retail behemoth that is the Arcadia Group became the last in a long line of businesses that the Covid19 crisis has forced into possible bankruptcy. But can the Coronavirus crisis be solely to blame for the fall of this retail empire? The losses of £137.5 million declared in 2019 (down from profits of £119.3 million just 2 years prior) would seem to indicate otherwise – so what was really behind this retail giant's downfall?
Since the launch of Topshop in 1964, the Arcadia Group has built its empire in offering the latest fashion trends to the masses. Their brand portfolio covered a massive range of target audiences, with Topshop, Topman and Miss Selfridge appealing to teens & twenty-somethings of both sexes; Evans covering the plus size market; and Dorothy Perkins, Burton and Wallis targeting consumers in their 30's and 40's. Flagship stores in London were the Mecca of affordable, trending fashion in the 90's, as designs were delivered hot off the catwalk to stores in as little as 8 weeks – a unique selling point that for a time made the group seem almost untouchable. But as other brands (most notably Zara) were able to use and improve on this model, Arcadia Group seemed at a loss regarding how to differentiate itself and appeal to its audience.
Zara wasn't the only rival to cause friction – the rise in supermarket fashion brands and low cost stores such as Primark became hugely popular with the group's target market of young people – many of whom had suffered a major reduction in disposable income after the 1998 financial crisis. Added to this the increasing popularity of online retailers such as Boohoo and Asos (also able to offer lower prices due to reduced operating costs), the Arcadia brands' USP's of affordable, trending fashion were no longer unique and they were beginning to lose touch with their audience.
Cutting costs became a priority, but short-sighted measures resulted in a major own goal. Despite their target audiences being the most likely to use e-commerce platforms, investment in online solutions was sidelined, leaving online stores unable to keep up with the attractive propositions offered by rivals. On top of this, instead of streamlining the supply chain to allow fast turnaround on trending styles to ever-more fashion-conscious consumers, Sir Philip Green decided to outsource the majority of sourcing and manufacturing to Asian suppliers, resulting in slow lead times and products arriving to stores when the fickle trends had already moved on to the next big thing. The fall of the pound caused by Brexit only resulted in further losses with this business model, losses which retailers such as Boohoo (with a largely UK based supply system) were able to avoid.
Perhaps Green believed he could simply rest on the laurels of the brand names which had been built up over decades of popularity, and to begin with it may well have seemed that the fame of the brands themselves would allow them to outlast the storm. Even the combination of increased competition from lower cost rivals, e-commerce platforms and fast fashion brands were not enough to lessen the brands' appeal in and of themselves. But a slew of scandals surrounding the Arcadia Group and its owner accelerated its ever more inevitable collapse.
The first scandal to hit was the collapse of BHS – a beloved department store and fixture of the UK highstreet for almost 80 years before it was acquired in 2009 by the Arcadia Group for a sum of £200 million. The problems started straight away as the financial crisis and subsequent reduction in interest rates was a massive blow to the BHS pension scheme, resulting in a huge deficit which was only compounded by the brand's inability to adapt to changing consumer trends. In selling off the struggling chain in 2015 at a price of just £1, Green was accused of attempting to dodge responsibility for the thousands of employees affected by the insolvent pension scheme (despite earning several hundred million pounds in dividends while at the head of the store) – leading some MP's to petition for the removal of his knighthood. An eventual settlement of £343 million deposited by Green to fund a new pension scheme may have been the “end of the matter” for the billionaire, but it wasn't the end of the scandals that he seemed to attract. In 2018 he was the focus of a major #metoo scandal and alleged cover-up, with previous employees accusing him of making racist remarks, groping female employees and being aggressive or violent towards employees of both sexes. While vehemently denying the allegations, the tarnish caused by the scandal to Arcadia brands was a step too far. Beyoncé (whose athleisure brand was held as a fifty-fifty partnership with the group) severed ties after the scandal broke, and the image of an allegedly racist & misogynist capitalist billionaire in charge of the high street stores was a major turn-off for the young target audience who increasingly value brand social responsibility.
So it was with a millions in losses in 2019 and having to rally against rumours that the group would declare administration in early 2020, that the Covid crisis hit. Arcadia's over-reliance on brick-and-mortar stores and their Asia based supply chain was the perfect storm from which it would prove impossible to recover. Despite attempting to offset losses by refusing to pay for orders from Asian suppliers worth over £100 million (resulting in even more unwanted controversy), and furloughing almost 10,000 staff members, the second phase of lockdowns was simply the final blow from which the long suffering Arcadia Group could no longer recover. It's true, the big brand names may survive under different management – Topshop is too important a brand identity to simply disappear without a trace. But, the demise of the Arcadia Group seems to be a cautionary tale of how NOT to run a fashion business, or any business for that matter.
The mistakes made were numerous and avoidable. Perhaps the most damaging was to simply rely too heavily on the brand's fame – in believing that the brands were untouchable the need to innovate and stay relevant seemed unnecessary. So even as its fast fashion competitors flourished, low cost brands took over more market share, and e-commerce became the powerhouse of the retail industry, the Arcadia Group found itself stuck in the past, completely out of touch with its target market. And whereas the Coronavirus crisis has propelled some companies to make 10 years of progress in 10 months, it tolled the death knell for the brands that were unable, or unwilling to adapt to the times. While 2020 has placed the retail industry under the most extreme circumstances in living memory, the fact is that consumer trends have been changing at ever accelerating rates for some time now, crisis or no. Businesses must make sure that they are able to adapt to unforeseen circumstances quickly, using real-time customer data to make agile decisions, and prioritising the available technologies to make sure that they are not left out in the cold.
In the fashion retail industry, traditional sourcing methods can make this almost impossible – much like Topshop, many fashion retailers find that forward orders for the latest trending products are no longer relevant when they arrive months later at their stores. Which is why TradeGala is pioneering the growth of the short order wholesale fashion movement. By offering live wholesale products from international fashion brands, retailers are able to source the latest designs and have them arrive in store in a matter of days. By reducing up-front investment and allowing multi-season stock updates, TradeGala is helping independent retailers to achieve an agile business model which will future-proof businesses against any crisis yet to come. Arcadia Group is a lesson to us all – adapt and survive or stagnate and suffer the consequences.
Written by Amber Domenech Patey