There are fears Arcadia could become “the Carillion of retail” after it emerged Sir Philip Green’s business empire may go bust owing over half a billion pounds to pension scheme members and suppliers.
It comes as Sports Direct supremo Mike Ashley moved centre stage in a pivotal week for the UK high street by offering a £50m emergency lifeline to the Top Shop owner, while experts predicted he is now also in pole position to buy Debenhams after JD Sports retreated from the fray.
The Arcadia Group, which has 13,000 staff and 550 stores across brands including Topshop, Burton, and Dorothy Perkins, is on the brink and could enter administration as early as Monday, according to sources.
The company’s pension fund has a blackhole that could be as large as £350m. Additionally, around £250m worth of invoices from suppliers could go unpaid should Arcadia collapse, according to estimates from insurance firm Nimbla.
On Sunday, Sir Philip faced calls from Stephen Timms, the work and pensions committee chair, and from the Labour Party to use his personal fortune to meet the pension shortfall, as he belatedly did after BHS went bust in 2016.
Arcadia swings to a loss
Flemming Bengtsen, the chief executive of Nimbla, highlighted that BHS also left £1bn worth of unpaid invoices when it fell into administration.
“Around £250m of unpaid invoices owed to Arcadia’s suppliers may threaten the existence of hundreds of small businesses and jobs further down the supply chain,” said Mr Bengtsen. “At a time when small businesses are more precarious than ever this could be the fatal blow to many SMEs.”
Nimbla calculated the figure using a model that was based on prior public accounts and past retailer defaults of a similar scale.
Mr Bengtsen pointed out that BHS creditors ended up receiving 3.6p on the pound but that this time he doubts “they will get anything”.
Mike Cherry, the chairman of the Federation of Small Businesses, said: “Arcadia’s latest reporting shows that it pays most of its invoices outside of agreed terms, and those terms are already long at 60 or 90 days. In response to Covid, Arcadia protected its cashflow further by processing invoices less frequently and lengthening payment terms by a further 30 days, both at the expense of the cashflow of small suppliers.
“We are concerned that Arcadia is starting to look like the Carillion of retail.”
Carillion was a construction and outsourcing company that went bust in 2018 owing nearly £7bn.
Sir Philip, pictured in 2014, belatedly agreed to top up BHS's pension fund after that business ran into trouble. MPs want him to do the same again here.
Credit: David M. Benett/Getty
One Arcadia supplier said: “Arcadia still owes us a lot of money and we are still sitting on a lot of stock that they should have taken this year. “If all they needed was £30m to see them through I am staggered that Sir Philip has not used his own money, especially with the news of the vaccines.”
Sir Philip and his wife Lady Tina are believed to have a combined fortune of around £930m.
Clive Black at Shore Capital Markets sounded a note of optimism, saying Arcadia’s suppliers could end up in a “more secure home” were the company to collapse.
“Although it’s a worrying time now on the stock they have committed to and may not have been paid for, if Arcadia ends up in the right hands then those suppliers will actually ultimately have greater security going forward,” he said.
A spokesman for Arcadia made no comment on either estimate and dismissed the prospect of Frasers Group owner Mike Ashley providing a lifeline, calling the offer a “publicity stunt”.
In a letter to the board of directors, Mr Ashley’s Fraser Group said that it was willing to provide a loan of up to £50m to address Arcadia’s cash-flow difficulties.
The company said that it would not be seeking security for the emergency funding and that it was open to providing more loans in the future if needed.
“We have, on many occasions, publicly expressed our concern over the destruction of the retail landscape, and these concerns have only been heightened by the current Covid-19 crisis,” Chris Wooton, Frasers’ chief financial officer said in the letter yesterday.
“Our offer would allow you to retain employment for many thousands of your staff, reopen hundreds of stores when the current lockdown ends, and protect the financial position of thousands of members of your pension schemes.”
Mr Wooton urged the board to consider the offer and stated that it would be “immediately withdrawn” if the group, or any part of it, enters an insolvency process.
Arcadia set to slash far more jobs than rivals
The potential collapse of Sir Philip’s empire also threatens to have a domino effect on the high street.
JD Sports backed away from its own exclusive talks around a potential deal to acquire troubled chain Debenhams.
Arcadia is Debenhams’ biggest concession holder and City sources linked its potential demise to JD’s withdrawal from the process to buy the department store.
Shore Capital’s Mr Black said that Mr Ashley, who has made no secret of his desire to buy Debenhams, now had the “potential to take full control” of the company.
“He may be on the threshold if JD does walk on picking up Debenhams for whatever price he has to pay to be honest,” said Mr Black.
Stephen Timms MP called on Sir Philip to dip into his own pocket again, three years after he agreed to pump £363m into the pension fund of the collapsed BHS.
Mr Timms, who wrote to the pensions regulator on Sunday to underline the importance of protecting pension scheme members, said: “This is a dreadful time for Arcadia staff to be worrying about their jobs and their pension. Whatever happens to the group, the Green family must make good the deficit in the Arcadia pension fund.”
Lucy Powell MP, Labour’s shadow minister for business and consumers, called on the Monaco-based billionaire to “do what is right and cover Arcadia’s pension deficit”, and said the Government needs to do more for small businesses left in the lurch.
“Most government grants are worth less than a third of what they were, other business cash support has been pulled away, and businesses face a growing mountain of debts,” she said.
A spokesperson from the Department for Business, Energy and Industrial Strategy said: “We understand this will be deeply worrying news for Arcadia’s employees and their families, and the Government stands ready to support them.
“We are in touch with Arcadia and are working closely with them to gain a full understanding of the situation.”