Arcadia Group’s creditors have voted in favour of a widespread store restructuring through company voluntary arrangements, pulling Sir Philip Green’s retail empire back from the brink of administration.
It was Arcadia’s second attempt to gain approval from its landlords for seven CVA processes, after talks reached a stalemate last week.
Ian Grabiner, chief executive of Arcadia Group, said: “After many months of engaging with all our key stakeholders, taking on board their feedback and sharing our turnaround plans, the future of Arcadia, our thousands of colleagues and our extensive supplier base is now on a much firmer footing.
“From today, with the right structure in place to reduce our cost base and create a stable financial platform for the group, we can execute our business turnaround plan to drive growth through our digital and wholesale channels, while ensuring our store portfolio remains at the heart of our customer offer.
“I am confident about the future of Arcadia and our ability to provide our customers with the very best multi-channel experience, deliver the fashion trends that they demand and ultimately inspire a renewed loyalty to our brands that will support the long-term growth of our business.”
Arcadia had postponed the vote on the CVAs to today (12 June) after failing to secure the minimum 75% support needed to pass its proposals last week, believing it could change the minds of key landlords including Landsec and M&G Investments.
It sought to achieve this with a compromise deal, in which rental reductions across 194 locations would be revised down to between 25%-50% for all landlords affected by the CVAs, from 30%-70%. The group’s main shareholder, Lady Green, would plug the shortfall with an initial £9.5m.
As with the initial proposals, 23 of 566 stores were identified for immediate closure.
In the event of a future sale of the group, Lady Green has also vowed to provide all affected landlords with an entitlement to a pro rata share of 20% of any equity value in the business.
A hard sell
The promise of holding equity in the business in return for support for a restructuring is already having an effect on the industry, with landlords understood to be pressing Monsoon Accessorize for a stake to form part of terms for its impending CVA.
Given today’s delayed vote – coupled with Sports Direct’s legal challenge to Debenhams’ CVAs earlier this week – the signals point towards increasing resistance from landlords against the tidal wave of proposals initiated by retailers in recent years.
Some landlords could not be persuaded by the revisions. Among these, intu voted against the proposals for a second time.
A spokesperson for intu said that the rationale for voting against the CVAs was “clear”, adding: “We firmly believe that the terms of the Arcadia CVA are unfair to our full rent paying tenants and not in the interests of any of our other stakeholders, including intu shareholders and the 130,000 people whose jobs rely on the success of our prime shopping centres.
“While we are disappointed with the outcome of today’s vote, we will work constructively with Arcadia to achieve the best outcome for both sides.”
On the other hand, British Land, Landsec and Hammerson were among the landlords that backed the CVA amendments.
A spokesperson for PJT Partners, which acted on behalf of landlords including BL and Hammerson, said: “We engaged with Arcadia early in the CVA process, with the aim of agreeing terms on a consensual restructuring – an approach which altered many of the CVA terms to produce a fairer outcome for all landlords and stakeholders.
“The focus from management must now be on Arcadia’s store and multi-channel investment strategy and ensuring the business is in the best possible position for the future.”
EG previously found that intu and British Land were among the landlords owning the largest proportion of stores in Green’s retail empire.
Intu either owned or jointly held 35 Arcadia-branded stores across retail parks and shopping centres. British Land owned all or parts of 24, while Hammerson and M&G each owned stakes in 18 shops. Landsec had 13 stores.
The reaction so far
Industry figures have noted that while implications of the CVAs on retail valuations could be significant, they outweigh the greater impact that administration would have had on rental income and covenants. Moreover, it is well known that Arcadia has been renegotiating rents for several years already.
Several have observed, however, that the CVAs will likely make only a limited impact in enforcing a meaningful turnaround of the business.
An unnamed senior figure at one landlord, which voted in favour of some but not all of the CVAs it would have been affected by, said: “We’re not anti-retailer or anti-jobs – we can’t afford to be. When people have jobs they spend money, and the majority of consumer spending is still in stores.
“But I think landlords sent Arcadia a pretty strong message that they won’t just sit back and get rolled on these processes.
“If you contrast what happened with Debenhams with Arcadia, it is like night and day. Landlords are generally supportive where they feel there is a legitimate turnaround and believe in the management and business.”
Ed Cooke, chief executive of Revo, said: “The Arcadia CVA has gone through with better terms agreed, largely as a result of the unusually high level of influence and impact of the property owners vote.
“However, the outcome once again underlines the unfairness of the CVA process, with owners and local authorities bearing much of the pain for years of underinvestment.
“[We] still believe there is a need for government to intervene to avoid misuse of this insolvency procedure, which risks damaging town centres and high streets across the UK, deterring future investment into these places and damaging the UK’s global competitiveness by undermining our legal system where contract is sacrosanct.
“It is clear that a CVA alone will not be enough to save the jobs of 18,000 hardworking Arcadia employees, and we hope the restructuring plans for the brands will be enough to ensure they have a sustainable future.”
Richard Hyman, independent retail analyst, said the retail group is largely “kicking the can down the road”, adding: “Arcadia has too many irrelevant brands – it buys time, but not much else.
“These restructuring processes only ever address costs. For virtually all these distressed players, their cost are too high because their sales are too weak. [These] processes miss the point.”
Chloe Collins, senior retail analyst at GlobalData, said: ‘‘Although Arcadia’s CVA has been approved, it is unsurprising that it faced backlash from some landlords who have doubts about the retailer’s future. Its leading brands – Topshop and Topman – still have a strong following among millennials, however many of the other, such as Miss Selfridge and Dorothy Perkins, are now irrelevant in a highly saturated market and chances of revival are slim, leading landlords to question whether other retailers could offer their spaces more longevity.
“The £75m invested from Green into its physical stores however is going to be too thinly spread as the agreed closures still leave Arcadia with an estate of around 500 stores which have been neglected for far too long and are now unable to match competition which moves in favour of experience-led shopping.”
Melanie Leech, chief executive of the British Property Federation, said: “CVAs are never easy as property owners are being asked to absorb large losses, which impacts the investment that these owners manage, including many of our savings and pensions. However, ensuring a sustainable future for the UK retail sector is equally critical to both the property and retail sectors.
“Property owners will now want to see Arcadia’s leadership committed to delivering its turnaround plan to restore the long-term health of the business.”
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