Arcadia restructuring part of broader UK retail downturn

Competitive consumer pricing, currency devaluation, wage growth, pension problems and continued migration to online, make for a very challenging UK retail environment.

According to Sky news, Arcadia, which owns retail brands like Dorothy Perkins, Burton, Miss Selfridge, Evans and Wallis, are aiming for a Company Voluntary Arrangement (CVA), potentially involving re-negotiations of deals with big retail property landlords like British Land and PPF and significant staff redundancies.

Like a lot of big UK retailers, the Arcadia Group is experiencing tough times.

Arcadia’s challenges coincide with increasing costs of goods, pressure to reduce consumer pricing, a reported 42% drop in 2017/18 FY operating profit and big pension deficits.

In 2017 Greene agreed with the UK Pensions regulator to contribute to a £571 m BHS pension fund shortfall, with a £363 m contribution – Greene owned BHS for 15 years, before selling it in 2015 to Dominic Chappel for £1.

n 2017, Arcadia’s combined pension deficit was reported at £993 m.

Arcadia’s pension problems are part of a broader UK retail story, labelled a pensions “Time bomb” in the retail press. JLP has a reported £731 m pension black hole and last FY saw operating profit slump 56%.

Despite like-for-like sales up 1.3% at Waitrose and 1.4% down just at John Lewis, pressure on consumer pricing and a devalued pound are having a big impact on UK retail and earlier this year forced JLP to cut staff bonuses to their lowest in 65 years.

UK retail sales increased by 2.2% in January, against an increase of 1.4% last year. Sales increased by 1.8% on a like-for-like basis from January 2018. BRC-KPMG Retail Sales Monitor. Feb 2019

Despite higher January retail sales, largely due to heavy discounting, Brexit uncertainty has lead to the lowest UK retail investment in 7 years and in-store footfall continues to drop in favour of online retail.

This makes for the most challenging time in UK retailer since the 2008 financial crisis. Add to this wage increases, due to shortage of EU labour and a 14% rates increase; last year saw 43 major Retail failures, just 15 short of the 2008 financial crisis.